Pan Zhengyan, a renowned financial economist with the Shanghai Academy of Social Sciences and staunch advocate that WTO will not spell the end for the domestic sector, points out financial institutions will continue to enjoy protection for up to five years after entry is secured.

"The Chinese financial sector should, however, stay on its toes, upgrading services and launching new products which satisfy customer demand," said Pan.

"Financiers working in these businesses should have a full diary in the coming months," said the economist in a recent interview with Shanghai Star.

Pie for foreign banks

A report published recently by the British-based Standard & Chartered Bank that specializes in emerging markets, however, predicts foreign banks will have an 8 per cent of total market share in the domestic market after they have been operating in China for just two to three years, a serious slice of the pie.

And if the discord between foreign and local commentators makes the future seem uncertain for China's banking sector, 1999 did not inspire great confidence.

Seven consecutive reductions in deposit and loan interests have resulted in a total of 210 billion yuan ($25.36 billion) losses in income for the banking sector in 1999, according to their own statistics.

And the central bank's decision in mid-1999 to further expand foreign banks involvement in renminbi business, coupled with the re-levying of an interest tax in late-1999, all combined to make 1999 a tough one for the sector.

During the recently-concluded market access talks with the United States, negotiators were chafing at the bit to secure more comprehensive entry to China's financial sector; and the opening up of the sector is also expected to be a major focus of the talks with the European Union scheduled to start next month.

Chinese financial institutions started the new year, at least, on a good note. They passed into the year 2000 bug-free, and now are looking to the new millennium with great expectations.

Strategy for competition

According to Pan, their strategy for future development will involve more alliances and co-operation between domestic financial institutions in the wake of the signing of an agreement between the Beijing-based Bank of China and the Shanghai-based Bank of Communications late last year for a strategic co-operation in all possible business areas.

"After all, a diversified and small-scale banking distribution structure is so vulnerable to intense market competition," Pan said.

"WTO entry is also a great opportunity for the banking sector, powerful economic growth that will likely be generated from WTO entry will demand more support from financial sectors," said Wang Yaotian, a renowned expert in WTO research, in a recent interview with Shanghai Star.

Zhou Lu, president of the Bank of China Shanghai Branch, said the invasion of foreign banking institutions was actually "not a bad thing" for "competition fuels progress."

He was echoed by Meng Xingguo, vice-president of the Allianz-Dazhong Life Insurance Co, who said the influx of more foreign firms would definitely lead to the improvement of domestic services on offer for Chinese clients.

Pan is in agreement that competition will raise overall standards in the industry.

Also working in their favour, is the fact that Chinese banks have their roots here - they have built up strong relationships with domestic clients, established nationwide networks and have the market resources.

Supporting SMEs

According to Pan, the year 2000 will see domestic banks consolidating these advantages, in particular by extending greater financial support to small-and medium-sized enterprises (SMEs).

"SMEs, especially high-tech firms, have already played a very important role in national economic growth, yet their development has long been restrained by lack of funds," said Pan.

But he predicts banks will befriend them in 2000 as the government lays more stress on the growth of the high-tech sector.

Banks here are also giving more attention to individual consumers - some banks, in fact, started focusing on personal loans last year.

The Shanghai-based Pudong Development Bank, for example, had good responses to its range of personal loans - including housing loans, educational-assistance loans, personal travel and electrical appliances loans.

The bank granted some 15 billion yuan ($1.81 billion) in individual housing loans to some 300,000 Shanghai households to help them realize their dream of becoming home-owners.