"There's no doubt that the personal wealth of individuals, especially those in major cities, is growing twice as fast as the gross domestic product."

A ringside view of gradual changes in the banking sector

I was fortunate to have worked for a foreign bank as well as a domestic bank in the past four and half years and witness the gradual opening up of the banking sector since China became a member of the World Trade Organization (WTO) five years ago.

During my stint as the China CEO in HSBC, I witnessed the regulators' well-planned and fair approach in inviting foreign banks to offer more services to a wider variety of customers in more cities.

The changes initiated by the China Banking Regulatory Commission to modernize the banking sector were being implemented successfully by domestic banks, spearheaded by Bank of Communications (BoCom), restructuring their balance sheets, partnering with major international banks and floating their shares in the Hong Kong stock exchange.

I had a ringside view of the pace and scope of the changes taking place — way faster than other financial markets, notably Hong Kong.

The recent promulgation of new rules at the fifth anniversary of China's entry into the WTO was the culmination of the move toward granting full and equal access of foreign banks to the estimated 12-trillion-yuan consumer deposit market.

There are nearly 200 foreign banking institutions in China. The expansion of their products and services will bring both opportunities and challenges to players in the growing consumer banking sector.

There's no doubt that the personal wealth of individuals, especially those in major cities, is growing twice as fast as the gross domestic product, and the demand for new products and services are increasing virtually daily.

Given the limited access of local residents to international investment instruments, especially in the retail market, banks will take advantage of every window provided by the regulators, such as the latest QDII (qualified domestic institutional investor) initiatives.

Foreign banks will bring their international experience in this area and will most probably work with local partners to bring their products to a wider client base. Large retail banks that will be incorporated in China soon will expand their network of branches and build a mass-market brand for themselves.

Although domestic banks have advantages of scale in terms of branches and customers, it will be a challenge for them to leverage those advantages. Foreign banks are focusing on certain customer segments and geographical locations, and they could easily erode local banks' seemingly established advantages.

In preparing for the complete opening up of the market, the cooperation of HSBC and Bo-Com brought benefits to each other, their shareholders and customers.

HSBC's contribution from China business last year more than doubled from a year ago to $700 million, with 70 percent coming from strategic partners in China. BoCom reported 33 percent growth in its net profit after tax to 12 billion yuan in 2006 and the non-performing loan ratio was the lowest in its history.

Retail customers gained from the international credit card that HSBC and BoCom co-branded as well as the high return from the QDII products by using investment vehicles in Hong Kong and elsewhere. The author is executive vice-president of Bank of Communications

The author is executive vice-president of Bank of Communications

By Dicky Yip