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China's banking authorities are amending regulations on investment in domestic financial institutions, designing new standards that would raise the upper limit of foreign holdings and widen the sphere of investors in Chinese banks.

A spokesman for the China Banking Regulatory Commission (CBRC) confirmed to China Daily yesterday that the amendments are under discussion by relative government departments as well as some domestic and foreign banks.

There is no timetable for the finalization of the new rules, but insiders said the authorities would try to implement them as soon as possible.

One of the major changes expected is wider investor sphere in Chinese banks. The temporary regulation on investment and holdings in domestic financial institutions, which was adopted by the central bank in 1999, does not allow investment from foreign companies or joint ventures in domestic financial institutions.

But that has apparently become outdated with China's entry to the World Trade Organization (WTO) at the end of 2001 and the opening of its financial industry.

Liu Mingkang, chairman of CBRC, said last month that foreign institutions, in the new rules, would be allowed to hold a maximum of 25 per cent in domestic banks.

A number of foreign institutions have already bought into Chinese shareholding commercial banks over the past two years but the maximum, 15 per cent, is held by the International Financial Corporation in Nanjing City Commercial Bank.

Regarding the type of foreign investors that can buy into domestic banks, participants of an internal meeting of the CBRC last week said that apart from foreign financial institutions, other foreign corporate legal persons may also be able to make such investments, reports 21st Century Business Herald. But the authorities would set some threshold on asset scales of qualified investors.

More lenient policies on foreign entry into the domestic financial industry would encourage more foreign institutions to invest in domestic banks and other financial institutions; and the smaller but more flexible city commercial banks and other regional shareholding banks would be the biggest beneficiaries.

For example, Citibank has acquired 5 per cent of Shanghai-listed Shanghai Pudong Development Bank in May this year; and intends to increase the stake to 24.9 per cent by 2008.

Foreign investors would bring in expertise and funds, but would also require domestic banks to upgrade themselves.

Zhang Yanling, vice-president of State-owned Bank of China, said last week at a conference that Chinese banks, including both State-owned banks and shareholding banks, still have a lot to catch up with their foreign counterparts in management, profitability and asset scale; and the industry also needs more innovation and upgraded services to hold on to customers.

By the end of July, foreign banks had 184 operations in China, including 151 branches. Since China joined the WTO, the regulators have allowed 37 foreign banks to conduct renminbi business in a number of major domestic cities.

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