More Foreign Investors are Encouraged to Participate to Build Up Privately Owned Banks

More Foreign Investors are Encouraged to Participate to Build Up Privately Owned BanksBanking regulators are now permitting establishment of privately owned banks to allow more foreign investors to participate in the reform process in efforts to build up the State dominated financial sector. As the government is taking series of steps in increasing the participation of private capital in its financial sector with the aim to improve services of non State companies and hopefully lessen government liabilities in the banking sector.

By promoting the development of private banks will deepen the financial system reforms even more and stimulate the vitality of financial markets and build up financial institutions. The China Banking Regulatory Commission stated that setting up private banks should treat domestic capital, overseas capital and State owned capital equally and fairly thus actively encouraging qualified private firms to launch private banks. Foreign investors will be allowed to purchase stakes in existing banks as these banks are encouraged to conduct ownership reforms.

But foreign shareholding restrictions in domestic banks will not be impacted by the private bank measures and overseas participation might be constrained by the existing foreign investment regulations. As China restricts overseas investment in domestic lender to 20 percent for a single investment and around 25 percent for all foreign investment. The country’s top banking regulator stated that around 40 institutions have already given their applications to establish private banks, and for its guidance the China Banking Regulatory Commission will be responsible to control the pace of creating these new private banks to fight off any risks.

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