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Citigroup (NYSE:C), HSBC (HBC) and ABN Amro (ABN) are among the first group of foreign banks granted authority to incorporate locally in China, and to provide comprehensive banking services there. We see this as a quite favorable long-term development for those banks.

Others will likely follow, but these companies are at the current forefront and may be among the long term "winners" in the race for Chinese banking business. These companies will form wholly owned local banks.

There are others, such as Bank of America (NYSE:BAC), that have purchased substantial interests in local Chinese banks. We would expect that Bank of America would eventually decide to incorporate locally, too.

Additionally, branches of foreign banks can now accept large time deposits of at least RMB 1 million from Chinese citizens without prior approval of the Chinese Banking Regulatory Commission. Formerly, branches were restricted to foreign exchange operations.

On the one hand, while buying part of a pre-existing Chinese Bank creates an initial "leg up" on banking there, it does not give the kind of brand equity development and control opportunity that a wholly owned local bank would provide. The maximum ownership of a local bank by a foreign bank is 20%.

On the other hand, a new wholly owned start-up would have a steeper development hill to climb. However, globally recognized and experienced giants such as Citigroup, HSBC and ABN Amro are quite likely more than adequately up to the challenge.

Note: Source of information from Chinese Banking Regulatory Commission.
Disclosure: Author owns positions in C.

Source: Foreign Banks Granted Authority to Incorporate Locally in China