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DE RUEHGZ #0413/01 2622338
ZNR UUUUU ZZH
R 192338Z SEP 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 3646
INFO RUEHOO/CHINA POSTS COLLECTIVE
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RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 030413 
 
SIPDIS 
 
USDOC FOR DAS LEVINE AND ITA/MAC/AP/MCQUEEN 
TREASURY FOR OASIA/ISA KOEPKE AND DOHNER 
STATE PASS CEA FOR BLOCK 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER 
STATE PASS SAN FRANCISCO FRB FOR CURRAN 
STATE PASS NEW YORK FRB FOR DAGES/CLARK 
STATE ALSO PASS USTR STRATFORD/WINTER/MCCARTIN 
PACOM FOR FPA 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV WTRO CH
SUBJECT: Foreign Banks in South China Continue to Face Regulatory 
Barriers 
 
REFERENCE: Guangzhou 5379 
 
(U) This message is sensitive but unclassified.  Please handle 
accordingly. 
 
¶1. (SBU) Summary: Foreign bank representatives based in Guangzhou 
reviewed with the Consul General at a lunch on September 18 barriers 
that continue to limit the expansion of their market share.  These 
include lending caps, high capitalization requirements, RMB 1 
million minimum deposit for RMB customers, and a limit to two new 
branches per year.  China may have committed in the WTO to open the 
market to foreign firms fully by the end of 2006, but they expect - 
and did not seem too concerned that - the transition will be more 
gradual.  They also said Guangzhou has a "critical" shortage of 
skilled professionals in the banking industry.  End Summary. 
 
Ready for RMB Business 
---------------------- 
 
¶2. (SBU) Bank of America's Guangzhou Branch Manager Julia Yu said 
seven foreign banks in Guangzhou had received licenses to conduct 
RMB business, and they were awaiting further guidance from 
regulators.  Citibank's Guangzhou Branch Manager Milson Lau said 
CBRC will require that any foreign bank branch register as a PRC 
company prior to conducting RMB business; he pointed out that this 
would adversely affect the branch's credit rating.  All of the 
representatives (which also included those from Deutsche Bank and 
Bank of Montreal) complained that the RMB 1 million minimum deposit 
requirement for domestic clients is too high, though Lau conceded 
that most banks would likely select only upper-tier client during 
the initial stages. 
 
Lending Caps/Regulation Overload 
-------------------------------- 
 
¶3. (SBU) The bankers also complained that their lending volume was 
restricted by China's foreign bank quotas, which govern bank loans 
that are based on letters of credit from the parent bank abroad 
(this is the case for most loans).  Bank of America has raised the 
issue directly with regulators but has seen no significant change. 
Deutsche Bank's Guangzhou Branch Manager Myron Shi estimated that 
national and local regulators have issued 200 banking-related rules 
and regulations during the past year.  The bankers said many of 
these documents include significant overlap, and determining which 
rule to follow can be difficult. 
 
SAFE Finally Puts It in Writing 
-------------------------------- 
 
¶4. (SBU) Citibank's Lau, who currently heads the Guangdong Foreign 
Bank Liaison Committee which represents the interests of foreign 
banks in Guangdong, noted that SAFE recently responded in writing to 
a question regarding the interpretation of a banking regulation. 
This was the first time in his experience that SAFE had been willing 
to clarify an interpretation in writing instead of verbally.  The 
bankers mentioned that communication between them and CBRC and the 
People's Bank of China had also improved somewhat this year. 
 
Help Wanted 
----------- 
 
¶6. (SBU) The banks all agreed that Guangzhou faces a significant 
shortage of skilled professionals in the banking industry. 
Citibank's Lau said this is particularly true for marketing 
positions.  Bank of Montreal's Guangzhou Branch Manager Brendan Wong 
estimated employee turnover at his office to be between 33 and 50 
percent annually.  Deutsche Bank and Bank of America estimated their 
turnover to be approximately 20 percent. 
 
Citibank on Guangdong Development Bank 
-------------------------------------- 
 
¶7. (SBU) Citibank's Lau insisted that the bid by Citibank and its 
partners for Guangdong Development Bank had not been approved, 
despite press reports stating it had been.  Though he is not 
involved in the negotiations, he said Citibank is intent on gaining 
management control in the deal.  He characterized the lengthy 
approval process as an example of the disconnect between local 
regulators (who allowed it to move forward) and national regulators 
 
GUANGZHOU 00030413  002 OF 002 
 
 
(who decided it had gone too far).  He added that buying a domestic 
bank with its branches already established is the most efficient way 
to enter the China market. 
 
Comment 
------- 
 
¶8. (SBU) These issues have been around for many years, and are 
unlikely to disappear by the end of the year.  Deutsche Bank's Shi 
characterized China's banking policy as "two steps forward, one step 
back."  The representatives were not openly critical of the central 
government's overall approach to banking regulation and seemed 
content to deal with difficulties as long as they continue to earn a 
profit. 
 
GOLDBERG