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China to Allow Up to 5 Privately Funded Banks in Trial

Shanghai Pilot Free Trade Zone
The monument for the China (Shanghai) Pilot Free Trade Zone stands in front of buildings at a gate to the Waigaoqiao free trade zone and logistics park in Shanghai, China, on Oct. 22, 2013. Photographer: Tomohiro Ohsumi/Bloomberg

China will allow a batch of three to five banks funded by private investment this year to operate under a trial as part of the country’s financial reforms, according to the China Banking Regulatory Commission.

China will guide private investment to participate in the restructuring of existing banks and explore lowering the threshold for foreign banks to enter the industry, the banking regulator said in a statement on its website yesterday. The commission will step up its support of the Shanghai free trade zone, according to the statement.

The country will moderately ease the risks from local government financing vehicle loans this year and strictly control risks from property loans as part of its efforts to improve financial services, according to the statement.

Foreign lenders are struggling to expand their market share of less than 2 percent in the world’s second-largest economy, where banking assets more than doubled since 2008 to 147 trillion yuan ($24 trillion) as of Sept. 30. Global banks face government restrictions on adding branches and offering products as local rivals churn out record profits.

HSBC Holdings Plc and Bank of America Corp. are among foreign banks that expect to benefit from China’s expansion of financial freedoms even as regulatory challenges persist, according to Ernst & Young LLP.

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