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Chinese banking regulator indicates loosening of market restrictions in 2014

Foreign banks and privately financed banks could find it easier to access the Chinese market this year after the regulator announced a number of reforms to open up the state-controlled sector and encourage lending to companies in the country.

The China Banking Regulatory Commission (CBRC) intends to approve the setting up of between three and five private banks under a "pilot" scheme, it announced following a meeting on banking supervision. It will also consider whether thresholds for allowing foreign banks to operate in the country should be lowered.

Further details of the conditions that private banks must meet before being granted regulatory approval have not been published, but the CBRC said that private banks would be subject to "prudential regulatory standards".

Other priorities for 2014 identified by the regulator include better governance and risk management systems for the sector; measures to tackle risks associated with local government financing vehicles and property loans; and more support for the Shanghai free trade zone, which was established in September.

The pilot will allow privately-funded banks to be set up and existing banks to be restructured using private capital, according to an automated translation of a statement published on the regulator's website. The programme will be designed to "emphasise the promoter's qualifications, implement a limited license to adhere to prudential regulatory standards and manage the risk of entering into disposal arrangements", the statement said.

The statement also promised that the regulator would "explore the gradual relaxation of barriers to entry of foreign banks operating branches, RMB qualifications and working capital requirements". Foreign banks were given more freedom to set up branches and conduct business in the Chinese currency renminbi (RMB) when it was established in September but restrictions apply within China more generally. Banks in the free zone can also contribute to 'market-set' interest rates rather than accepting the rates set by the central bank.

The Financial Times has also reported that China is to begin regulating its growing shadow banking sector, where credit is provided outside of the regular banking system and traditionally subject to little or no oversight. However the draft regulations, seen by the Financial Times, also highlight the "positive role" played by shadow banking institutions in "serving the real economy and enriching investment channels for ordinary citizens", the FT said.

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