Nov. 9 (Bloomberg) -- China Merchants Bank Co. was cleared by the Federal Reserve Board to open a branch in New York, the first by a Chinese lender in more than 15 years, as the nation's banks line up to offer their services in the U.S.

The Fed said it could approve the application because Chinese regulators have taken adequate steps to clamp down on money laundering, a key requirement for opening a U.S. operation.

``In recent years the Chinese government has enhanced its anti-money laundering regime,'' the Fed said in a statement.

Chinese banks, flush with cash after raising $63 billion selling stocks in the past two years, are increasingly seeking targets overseas as the U.S. subprime mortgage meltdown hurts financial stocks globally. China now has the world's three largest banks by market value.

China Minsheng Banking Corp., the nation's first non-state- owned bank, last month agreed to buy as much as 20 percent of UCBH Holdings Inc., the biggest bank serving the Chinese community in the U.S. The Beijing-based company is mulling more acquisitions abroad, Lou Wenlong, a director at the China Banking Regulatory Commission, said at a Beijing press conference today.

China Merchants, China's sixth-largest bank, applied in January to open a New York branch. Industrial & Commercial Bank of China Ltd.'s application in April will be approved ``very soon,'' Lou said. China Construction Bank Corp., the country's second largest, said it plans to follow with its own bid.

Source of Strain

Bank of China Ltd., the nation's largest foreign-exchange lender, with locations in more than 27 countries, is the only Chinese bank with a branch in the U.S. Established in 1981, the bank's New York branch can offer a full range of consumer and corporate banking products and services.

As the China Merchants application with the New York Fed dragged on, the approval for the bank branches became a new source of strain between Chinese and U.S. officials.

``Chinese officials have frequently pointed to China Merchants Bank's pending application as a reason for their hesitance to give greater access for U.S. financial services firms to the Chinese market,'' said Taylor Griffin, a spokesman for the Washington-based Financial Services Forum. ``Today's action could help to resolve that issue.''

China's central bank issued the nation's first anti-money laundering regulations in 2003 and formed a joint group to tackle the problem in 2004. The country's first anti-money laundering law came into effect on Jan. 1. It requires financial institutions to inform the central bank of any cash transaction of more than 200,000 yuan, or $10,000 in foreign currency.

Paulson's Push

Suspected cases of money laundering jumped 12-fold to 387 billion yuan ($52 billion) last year as measures to monitor currency flows in the booming economy were tightened, the central bank said this week.

U.S. Treasury Secretary Henry Paulson has been pushing China to give more access to financial services than it offered in order to join the World Trade Organization in 2001. Since that time, China's markets have rebounded as the nation's more than 10 percent annual economic growth boosted private wealth, spurred loan demand and fueled a record stocks rally.

Chinese negotiators led by Vice Premier Wu Yi in May agreed to lift a moratorium on overseas firms' buying into domestic brokerages, triple the quota for stock purchases by foreign institutional investors to $30 billion and allow overseas banks to offer yuan-denominated credit and debit cards. None of these has materialized yet.

Foreign Ownership Cap

China's banking regulator has also formed a working group to consider raising the ownership cap for foreign investors in domestic banks, Lou said. China currently limits foreign ownership in a Chinese lender to 25 percent while a single investor can hold no more than 20 percent.

Chinese officials, in preparation for a December meeting in Beijing with Paulson and other officials, had tied the ability of its banks to establish U.S. operations as a prerequisite for opening its markets to more American insurance, securities and banking firms.

China, which has a record $1.43 trillion in foreign- exchange reserves, is also asking for commitments to ease the way for its banks and other companies to expand into the U.S.

The Bush administration has continued to push China to allow its companies to expand there.

``Opening the financial services sector to foreign participation will enable China to leap-frog years of costly and problematic practices,'' Paulson said in a speech to the China Institute on Nov. 8 in New York.

ICICI Bank Ltd. received a branch license from the U.S. Federal Reserve, becoming the first Indian bank in five years to obtain approval to open an outlet there, the Financial Times said Oct. 23, citing the company.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

Last Updated: November 9, 2007 04:13 EST