Global Bankers Say Trade Pressure on China May Force It to Open Doors

International bankers are cautiously optimistic that China will grant foreign banks wider access to its market, despite the country's anger over NATO's bombing of its embassy in Belgrade.

Bankers attending the annual meeting of the Bankers Association for Foreign Trade here last week said that China is under pressure to raise its restrictions on foreign-bank entry, to help ensure that its exports to the United States will maintain most-favored-nation status. Without that status, China would have to pay far higher import taxes than most other countries, making its goods less competitive in the States.

Beijing is aware that because of its suppression of speech, allegations that it tried to bribe U.S. officials, and indications that its spies have gained important U.S. military technology, Congress is unlikely to renew most-favored-nation status.

But China would not need approval from Congress if it is accepted into the World Trade Organization, which sets trade and tariff rules for practically all nations. If China is accepted into the WTO, it would automatically have most-favored status.

Part of the negotiations to allow China to become a member revolves around China's restrictions on entry by foreign banks.

Last April the U.S. Treasury reached a preliminary agreement with Chinese premier Zhu Rongji, under which China agreed to sharply reduce restrictions on foreign banks over the next five years. The agreement would allow foreign banks to open offices across China and to handle foreign- and local-currency transactions by 2005.

"It looks very promising," said Robert D. Kramer, vice president and manager for international government relations at Bank of America Corp. "We have quite a commitment from China, assuming the deal goes through."

China is under time pressure. It needs a deal with the World Trade Organization before October, when China's lawmakers adopt the country's next five-year economic plan. If no agreement is concluded by then, the bankers warned, the talks could drag on for several years.

On a matter closer to home, bankers here said they expect Canada's Parliament to formally approve a measure in June that would allow foreign banks to branch into that country. They are now restricted to operating in Canada through separately capitalized banks. Thomas Farmer, general counsel of the Bankers Association for Foreign Trade, said Mexico will probably follow Canada's lead.

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