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What is the "threat" of China's banking industry after China's entry into WTO?
At the critical moment at the turn of the century, China has taken a decisive step on its long journey to join the World Trade Organization. For the banking industry, this means that after a period of preferential treatment, China's commercial banking market will be completely open to the world around 2005. By then, foreign banks (approved by the central bank according to national treatment) can operate any banking business in China. This is a disturbing fact for China's banking industry, which is still in its infancy. How to strategically guide foreign banks to enter China's financial market, weaken the impact of China's entry into WTO and support domestic banks has become an urgent problem.

Rational Analysis on the Development Status of Foreign Banks in China

Since China introduced foreign financial institutions in 1980s, by the end of 1998, 24 cities had established commercial foreign financial service institutions with the approval of the State Council. China has officially approved 172 foreign banks in China. Among them, there are 153 branches of foreign banks, 7 Sino-foreign joint venture banks, 6 wholly-owned banks and 6 foreign-funded and joint venture financial companies. Except RMB business, almost all businesses in the financial sector have been opened to foreign financial institutions. In fact, foreign financial institutions are also actively piloting RMB business.

Due to the vast market in China's financial services, the perfect basic management level and flexible management style of foreign banks, especially the good business environment created by our government for foreign banks, foreign banks are in a very favorable competitive position in China. The impact of China's "internal and external differences" policy on the development of foreign banks is analyzed as follows:

(1) Tax and preferential policies provide fertile ground for the development of foreign banks. (1) Tax incentives. The income tax rate of general enterprises in Chinese mainland is 33%, which is consistent with the international prevailing level. The income tax rate of China's national specialized banks is 55%, while that of other commercial banks is 33%, while foreign banks located in special zones and coastal areas enjoy the preferential tax rate of 15%-30%, and most of the business tax is reduced or exempted, which is significantly lower than that of Chinese banks. Different tax rates put local financial institutions in a very unfavorable position when expanding their business scale, which leads to unequal competition between Chinese and foreign banks. (2) Business concessions. Although foreign banks can't operate some businesses at present, they can legally operate other businesses that domestic banks can't. For example, domestic financial institutions are not allowed to engage in investment business in China, while foreign banks can engage in foreign currency investment business. (3) The difference of policy burden can not be ignored. Our banks, especially the four wholly state-owned commercial banks, still have to bear a considerable part of the so-called "social responsibility" beyond the business content stipulated in the Commercial Banking Law. Some mature policy banks have not completely exempted commercial banks from their social responsibilities. The obligation of foreign banks to national policies is far weaker than that of local banks, and local governments rarely ask foreign banks for policy loans, but local banks often bear great pressure for this. In addition, foreign banks are less constrained by national macro-control policies.

(2) Financial supervision is relatively weak, which condones the illegal acts of foreign banks. Due to the imperfection of China's financial supervision system, in order to attract foreign investment, all localities actively support foreign banks and relax financial supervision. This has led to insufficient supervision and unfair competition of foreign banks. There are many irregularities in the business activities of foreign banks. The common ones are: (1) The phenomenon of profit conversion is serious. Some foreign banks often borrow from the head office at high interest rates, and at the same time remit the deposits absorbed at home to the head office at low interest rates, thus transferring profits abroad, which has caused great losses to our tax revenue. (2) excessive absorption of deposits. The Administrative Measures of Shanghai Municipality on Foreign-funded Financial Institutions and Sino-foreign Joint Venture Financial Institutions stipulates that "the deposits absorbed by foreign-funded financial institutions and Sino-foreign joint venture financial institutions from China shall not exceed 40% of the total assets of the bank in China". However, at present, the phenomenon that foreign banks absorb deposits in excess is quite serious. (3) Liquidity is not in place. A few foreign banks deposit their working capital abroad or transfer it many times, which makes the working capital not really in place. The current assets of some foreign banks can't reach the required proportion. According to the regulations, the proportion of current assets in the deposits of foreign-funded financial institutions shall not be less than 25%, in fact, some of them cannot reach 10%. (4) The provision for bad debts is unreasonable. A considerable number of foreign banks make unreasonable provision for bad debts, some do not mention it, some draw the standard not according to the regulations of China, but according to the regulations of their head offices, and some draw it only when bad debts occur or may occur, and draw it in the same or nearly the same amount according to the amount of bad debts. If bad debts do not occur, they will not be withdrawn. (five) illegal settlement business. Many foreign banks use unreasonable competitive means in settlement business, such as lowering the charging standard privately and inviting customers to go abroad. When handling remittance business, they lack the necessary documents and even accept fake documents. (6) Underpaying or failing to pay the deposit reserve. According to the current regulations of foreign financial service institutions in China, foreign banks should pay the deposit reserve to Chinese banks according to certain standards, but some foreign banks try their best to pay less or miss the deposit reserve.

The formation of the above situation is mainly due to China's long-term adherence to the basic policy of "combining preferential policies with strict access and limiting business scope" for foreign banks. Specifically, it is to attract foreign banks by providing preferential policies, and to protect China's underdeveloped financial industry by strictly limiting its business scope. In practice, on the one hand, the disadvantages of this policy aggravate the inequality of competition, and "ego" strengthens the threat to domestic banks, which has a strong impact and influence on their business operation and development, making Chinese banks in a very unfavorable position in the competition; On the other hand, there are too many restrictions on the business of foreign banks, which have been accused by the other side as discriminatory policies, seriously affecting the image of China in the international community. This policy has not adapted to the principles and requirements of China's accession to the WTO. Therefore, the fundamental way out is to change the original practice of "preferential policies plus business restrictions" and adopt a combination of relaxing business scope and strict supervision to attract foreign investment through business, limit the adverse effects of foreign banks through strict supervision and support the domestic banking industry.

Second, foreign banks are strategic guides to enter China's financial market.

In order to reduce the impact of China's entry into WTO on China's banking industry, we should make full use of the relevant principles and regulations of WTO at this stage and implement appropriate protection policies for China's banking industry in accordance with the strategy of relaxing business scope and combining strict supervision.

Flexible use of relevant WTO principles and regulations

1. Accurately grasp the principle of national treatment. In GATT, the principle of national treatment is stipulated as a basic principle, while in GATS, national treatment is stipulated as a specific commitment. According to the WTO's negotiation rules on trade in services, members can selectively and orderly open certain service departments or branches according to their actual conditions. In other words, as an obligation, the relevant members only provide national treatment to the services and service providers of other members' service departments that promise to open up and give national treatment; In those fields that only promise to open up without providing national treatment, the relevant members can only open up the relevant markets to the services and service providers of other members on the basis of the most-favored-nation treatment principle without providing national treatment; In sectors not included in the commitment list, member States are even less obliged to provide national treatment.

2. The concrete application of asymmetry principle. The asymmetry principle is one of the basic principles of the General Agreement on Trade in Services. Its content is mainly reflected in two aspects: first, developing countries' "more participation in five" and second, "gradual liberalization". The so-called "more participation" is mainly found in Article 4, which requires developed countries to help developing countries through consultation, enhance the capacity of their domestic service industries, improve their efficiency and competitiveness, and enable developing China countries to participate more in world service trade, and special consideration should be given to helping the least developed countries. The so-called "gradual liberalization" is mainly found in article 19, which means that developing country members should obtain appropriate flexibility in opening fewer sectors, relaxing fewer types of transactions and gradually expanding market access according to their development. Accordingly, the further opening of China's financial market can be carried out step by step according to China's policy objectives, the development level and regional distribution of banking services, and the buffer time of Chinese banks can be appropriately extended.

3. Flexible application of the most-favoured-nation treatment clause. Unconditional MFN treatment is the core clause of GATT. Although GATS still adheres to this principle, many contracting parties insist on conditional MFN treatment, believing that MFN treatment should be determined according to the competitiveness of service industries in various countries, or given different treatment according to the different development levels of beneficiary countries. For developed countries, they are also required to undertake more preferential obligations in financial information transmission, financial service technology sales and labor-intensive service import according to the provisions of GATT on differential treatment and the situation of special developing countries. Accordingly, on the one hand, China can invoke the unconditional MFN principle to obtain reciprocal treatment of transnational economy, and on the other hand, it should actively demand more preferential treatment from the other side according to the special situation of developing countries. In practice, when China opens its financial market, it can completely restrict market access and national treatment through negotiations, and effectively use restrictive measures to properly control the distribution of countries of origin, the total number and the number of branches of foreign banks, so as to prevent foreign banks from monopolizing or controlling the domestic financial market and ensure the share and position of state-owned commercial banks in the banking system of China.

4. Reasonable use of safeguard clauses and exception clauses. The safeguard clause in article 10 of GATS stipulates that when the import scale of a certain service increases sharply after reaching a specific commitment, causing serious damage or threat to the same domestic service and its providers, the host country may suspend all or part of the commitments reached. Article 12 stipulates that when the balance of payments of the host country is seriously unbalanced or serious difficulties occur in the external financial field, restrictions can be re-implemented, including restrictions on transaction payment and currency transfer. Article 14 stipulates that the host country may take corresponding restrictive measures when it needs to maintain public order, public morality, protect the lives and health of residents, animals and plants, prevent fraud, protect personal privacy and account secrets, and ensure national defense security. Finally, it is stipulated in Appendix (4) that the host country may take necessary restrictive measures for prudent reasons to ensure the integrity and stability of the financial system and protect the interests of investors, depositors and policyholders. These regulations provide opportunities and conditions for China to reasonably protect its domestic banking industry. We should seriously study, distinguish the situation and effectively protect the domestic financial industry.

(2) legal adjustment of relaxing business and strict supervision strategy.

On the relationship between domestic laws and international norms, many provisions in the laws and regulations promulgated and implemented in China are inconsistent with internationally recognized norms and norms. For example, China's regulations that foreign-funded institutions must abide by domestic reserves, deposit and loan interest rates, and capital lending when operating RMB are all formulated according to China's current economic and financial situation, which is far from international practice. In order to meet the needs of China's entry into WTO and truly implement the strategy of relaxing the five strictness on foreign banks, it is necessary to speed up the integration of domestic legislation with international legislation in the financial field.

1. On the legislative mode of market access, we should adopt the single-line legislative mode of "integrating inside and outside". Driven by the integration of the world economy, the economic legislation of developing countries (including China) has changed from the original dual-track legislative model of "internal and external separation" to the single-track legislative model of "internal and external integration", that is, the integration of foreign-related economic legislation and domestic economic legislation. China's foreign-related financial legislation can also refer to this practice, such as adding a chapter on "foreign-funded banking institutions" in the Commercial Bank Law to adjust the relationship between domestic financial legislation and foreign-related financial legislation. Judging from the current legislative practice, the minimum registered capital of commercial banks stipulated in the Commercial Bank Law is obviously inconsistent with the minimum registered capital of foreign banks and joint venture banks stipulated in the Administrative Conditions for Foreign-funded Financial Institutions. The one-track legislative model of "integration of inside and outside" can eliminate this inconsistency and unify the two by increasing the minimum registered capital of the latter.

2. In terms of access control of foreign banks, strict access standards and approval conditions should be formulated for control. At present, there are three types of foreign-funded financial institutions introduced in China, namely, branches of foreign banks, wholly foreign-owned banks, Sino-foreign joint venture banks and representative offices that cannot provide practical business services. From the point of view of financial management authorities, the safest form of foreign equity participation is representative office, and the most dangerous form is branch, because branches can operate various banking businesses, including deposit and loan business and trust business, which is allowed by the host country, while branches are foreign legal persons, and their business is listed on the balance sheet of their head office, which is subject to the least supervision and control by the financial management institutions of the host country. China's Administrative Conditions for Foreign-funded Financial Institutions not only does not strictly distinguish the establishment conditions of branches from other forms of financial institutions, but also emphasizes the form of branches in practice. In order to correct this bias and make the introduction of foreign banks most beneficial to the development of China's banking industry, we must make differences in examination and approval conditions and procedures according to different business forms. For example, simplify the examination and approval of representatives as much as possible; It is allowed to set up a joint venture bank in which foreign banks participate, but the law must stipulate the maximum amount of foreign participation; The conditions for foreign banks to set up branches in China should adhere to high standards, and their requirements should be stricter than those of other forms of foreign-funded financial institutions. A separate licensing examination and approval system shall be implemented for foreign banks, and the licenses shall be uniformly issued by the People's Bank of China.

3. In terms of business management, it should be a gradual and selective process to relax business control appropriately on the issue of opening foreign banks to operate RMB business. First of all, it is required that foreign banks engaged in RMB business must be foreign banks with remarkable performance and good reputation, which have been operating in China for a certain period of time and have a certain scale; Secondly, we can choose some foreign banks in special economic zones to start RMB business.