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Will Chinese residents turn to foreign-funded banks next year?

In a recent survey of 3,384 persons conducted by the China Youth Daily, 10.8 per cent say they will go to overseas banks.

More than 72 per cent of those surveyed say they will stay with domestic banks, and 16.4 per cent are taking a wait-and-see attitude.

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More than 85 per cent of those surveyed say they have paid attention to the news that foreign banks will be allowed to offer renminbi business to Chinese residents under the new regulations.

The survey findings partly reflect the fact that the opening of the banking sector marks a historic step in China's gradual opening of the financial sector, but overseas banks are unlikely to have an immediate impact on the domestic banking market.

"It is clear that foreign banks will increase their network expansion when allowed to do all renminbi businesses," says Zhao Xijun, a financial professor from Renmin University of China.

"Their growth will bring hotter competition to the domestic banking market and further pressure on Chinese commercial banks," he says.

However, all-out competition will not emerge in the short term, he says.

"The focus will be on good corporate clients and increasing the number of high-end individual customers," Zhao predicts.

A Moody's report on the outlook of China's banking sector agrees with Zhao.

The report says overseas banks have the competitive edge in foreign currency business with multinational corporations for trade finance, treasury, and, probably, cash and risk management.

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