On July 4 2001, the People's Bank of China (PBOC) took another significant step in reforming China's banking sector by issuing the Tentative Provisions on Commercial Banks' Other Businesses. The Provisions broaden the activities of Chinese banks to cover businesses that are investment in nature, a landmark development in the Chinese banking industry. With China's WTO entry imminent, Chinese commercial banks will face fierce competition from their foreign counterparts operating in China and the Provisions will help to create a level playing field.
Under the Provisions, Chinese banks are permitted to enter into various categories of new business ranging from consultancy, advisory and custodian services to securities and insurance businesses. Subject to approval from the PBOC, Chinese commercial banks are now permitted to engage in investment banking activities such as financial derivative services, participating in securities businesses, trusteeship of investment funds, financial information consulting and portfolio management and advice. This relaxation will bring about major changes not only in the banking sector but also in the securities industry.
The Provisions call on the PBOC to set up two systems, namely an approval system and a registration system, to monitor and supervise the new areas of business according to the nature and level of associated risk. Securities, insurance and derivatives business will require specific PBOC approval while credit reference or financial advisory services may only require registration with the PBOC.