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Chinese local banks to grow in US

By Wang Fei’er  (Global Times)

08:20, May 11, 2012

The Federal Reserve, the US central bank, gave its nod to three major Chinese State-owned lenders to expand their businesses in the US late Wednesday, indicating that China's banks have made impressive inroads in the country's banking sector even as regulators tighten their control on foreign financial institutions operating within its borders.

Specifically, the Fed has given its approval to Industrial and Commercial Bank of China Ltd (ICBC) to buy an 80 percent stake in the US subsidiary of Bank of East Asia, a Hong Kong company that has 13 branches in New York and California. Bank of China (BOC) and Agricultural Bank of China Ltd (ABC) have also received the go-ahead from the Fed to build branches in Chicago and New York City respectively.

Over the past 10 years, Chinese banks have been trying to beat a path into the US market as a way to offer more financing vehicles to overseas Chinese companies and encourage investors abroad to hold the yuan for use internationally, Wu Hong, vice president of the China Banking Law Society, told the Global Times yesterday.

Yet, in the course of a decade, ICBC has managed to open only one branch in New York City, while BOC is operating two locations in the same city and one in Los Angeles, all of which are vested with limited business operating rights, said Wu, who added that ABC's sole branch in New York City has no operating rights at all.

US regulators have long been concerned about allowing foreign financial institutions, especially Chinese banks, to operate in the country on concerns about their substandard risk management abilities, said Zhou Hao, a global market analyst at ANZ China.

Although the Fed's recent approval might indicate that US regulators are becoming more confident in China's banks, it may be another decade before these State-owned lenders turn a profit from this market, given the low demand for yuan-related services and policy restrictions, Zhou added.

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