Two foreign banks — Citigroup and DBS Bank — and eight Chinese banks are among the lenders at the forefront of participating under more liberalized policies in Shanghai’s new free trade zone, which officially opened yesterday.

The Chinese unit of US-based Citigroup, Citibank China, said yesterday it has received approval from the China Banking Regulatory Commission to establish a sub-branch in the pilot free trade zone.

“We are delighted with this approval and look forward to contributing to the ongoing prosperity of China’s financial sector and the success of the free trade zone,” Stephen Bird, chief executive officer of Citi for the Asia Pacific, said in a statement yesterday.

“China is a priority market for Citi and we are committed to continuing to invest and grow in China,” he added.

Singapore-based DBS said yesterday that its new sub-branch will initially focus on servicing corporate clients in the zone, complementing and strengthening its network in Shanghai.

“The Shanghai free trade zone is an important milestone in China’s efforts to build an international financial center and to reform and reinvigorate its economy for longer term economic viability,” said Neil Ge, CEO of DBS China.

Banks are now scrambling to establish a presence in what’s being regarded as the hot place to be in China. Foreign banks must have their applications to operate in the zone approved by the top banking regulator.

The State Council, China’s Cabinet, in a notice issued on Friday, said the new free trade pilot zone aims to accelerate financial system innovation under the premise of “controllable risk.”

The new zone, it said, will allow free yuan convertibility under the capital account, interest rate liberalization and cross-border yuan usage. Apart from establishing new outlets, foreign banks will also be allowed to form joint venture banks with private capital in the zone.

New phase

“The free trade zone will open a new phase of China’s financial reform process, bringing greater flexibility and fresh options to the heart of the world’s most dynamic economy,” Peter Wong, CEO of HSBC for the Asia Pacific, said in a statement after Beijing announced the blueprint of the new zone. “It is a reflection of the fact that China’s increasingly sophisticated economy needs increasingly sophisticated solutions to enable it to realize its full potential. We believe that further liberalization offers new opportunities for foreign banks in areas like product innovation, fund raising and corporate investment.”

Chinese subsidiaries of other overseas banks like Standard Chartered Bank, Bank of East Asia, and Overseas-Chinese Banking Corp also showed interest in potential business opportunities in the pilot zone.

On the domestic side, eight Chinese banks have received approval to operate in the new zone.

Shanghai Pudong Development Bank, a joint-stock bank, opened a branch in the zone yesterday and unveiled an exclusive organizational structure for the new branch, with six departments: treasury and finance, business management, retail business, risk management, information and technology, and business development. The branch will be headed by Wang Xinhao, currently general manager of the bank’s Shanghai branch.

The zone branch will oversee sub-outlets in the four existing bonded zones that have been melded to form the new Shanghai Free Trade Zone: the Waigaoqiao Free Trade Zone, the Waigaoqiao Free Trade Logistics Park, the Yangshan Free Trade Port Area and the Pudong Airport Comprehensive Free Trade Zone.

Pudong Development said it has been swamped by corporate client inquiries about the new zone and has set up two special desks in Waigaoqiao to provide information. Clients are keen to discern the difference between the existing trade zones and the new pilot zone, the bank said. They are also interested in new concessions that may provide benefits for their operations.

Industrial and Commercial Bank of China, the nation’s largest lender, has upgraded its sub-branch in Waigaoqiao to a branch-level outlet for the new zone to provide services including offshore and onshore banking, capital settlement, investment and wealth management, overseas financing, and bond issuance. The new branch was officially opened yesterday.

Agricultural Bank of China, the third-biggest lender, chose the same strategy as Pudong Development and is forming a new branch in the zone. Three existing outlets in bonded zones will be merged into a single branch, which will operate differently from the branches outside the zone.

Liu Guiping, general manager of the Shanghai branch of AgBank, said the differences involve interest rates and foreign-exchange rate liberalization, yuan capital account convertibility and cross-border financial services.

Product innovation

Bank of China, the country’s biggest foreign exchange bank, also opened a new branch at the zone yesterday and said it planned to develop customized products for different types of customers. Its overseas and domestics branches have joined hands for more product innovation.

“The zone provides an effective channel to simplify trade and investment procedures, which will spur domestic and foreign enterprises’ needs for higher-standard financial service,” Cheng Jun, general manager of the financial headquarters of Bank of China said.

“Our product portfolio and innovation will meet those demands. The zone offers a new channel for the enterprises to have more efficient treasury management, which will enhance the companies’ global industrial operations and supply chain management,” said Cheng.

China Construction Bank, the nation’s second-biggest bank, said on Friday that it will establish more outlets in the zone in the next two years to strengthen services to onshore and offshore clients.

Bank of Communications, China’s fifth-biggest lender, received the approval from the regulator for a new branch and a financial subsidiary specifically for leasing aircraft and ships in the new zone. Trust, fund management and insurance units of the financial group will open branches in the zone at the “appropriate time,” the bank said.

Qian Wenhui, deputy president of the bank, told a conference that the new branch will be “one of a kind.” Headquarters will monitor its performance, and the new branch will keep accounts separate from those outside the zone.

BoCom is one of the four banks that hold a license for offshore financial business outside of the zone. The other three are China Merchants Bank, Pudong Development Bank and Ping An Bank.

“Cross-border yuan business will be the focus of the new zone branch, and it’s one of our strongest strengths,” said Qian.

More Chinese banks will be allowed to handle offshore business in the zone, according to the State Council notice.

Bank of Shanghai was one of the three Shanghai-based banks to receive the approval for a new outlet in the zone. The other two are Bank of Communications and the Pudong Development Bank.

Shenzhen-based China Merchants Bank also opened a new branch in the zone yesterday to ride on new financial reforms and yuan globalization. It said in a statement that offshore business is one of its strengths, as overseas lending and settlement transactions grew by an annual compound growth rate over 50 percent in the past 10 years.