HONG KONG - China may be contemplating a relaxation of its ban on dealing in local currency, Hong Kong-based bankers say.

Foreign banks are eager to tap Chinese savings worth hundreds of billions of dollars but have been thwarted by the currency restrictions.

Rumors are rife that China may soon make the yuan freely convertible, opening up vast potential business for foreign banks.

Long-Term Residents

Hongkong and Shanghai Banking Corp. and Hong Kong's Bank of East Asia Ltd. managed to keep small offices open even during the Cultural Revolution, a decade of turmoil starting in 1966.

When China launched its open-door policy in the late 1970s, overseas banks started setting up representative offices, and now some 50 foreign bank branches operate in the country. Guangzhou, capital of south China's booming Guangdong province, is the latest city to allow foreign banks to open branches.

Until recently, overseas banks' operations have been relatively modest, mainly financing trade and overseas investment in China, and nearly always in foreign currency.

They have become increasingly frustrated at being locked out of the nation's vast domestic banking industry conducted in yuan, also known as renminbi (people's currency).

End to Monopoly?

But the People's Bank of China, the central bank, may be about to relax local banks' virtual monopoly on currency business.

"In a recent reply, the People's Bank of China told us that they are seriously considering the issue," said Raymond Yu, head of the China division at Bank of East of Asia, "I think we can optimistically predict that China will gradually allow foreign banks to do business involving renminbi in one year."

"China's main consideration is, the authorities may encounter difficulties in supervision once foreign banks are allowed to deal in renminbi business," he said.

Bank of East Asia is actually an exception. The bank, which opened in Shanghai in 1920 and is owned by Hong Kong Chinese, is allowed to take yuan deposits for historical reasons, but its business is still restricted.

Bankers have no doubt about the size of the domestic market. The official newspaper China Daily reported recently that total private savings in banks rose 20% between January and October to 1.1 trillion yuan, the equivalent of about $200 billion.

Foreign-owned branches, by contrast, have total assets of little more than $4 billion.

Citibank, the banking arm of Citicorp, is one bank keen to get the rules relaxed. "We hope our branches in China will be permitted to do business in renminbi, or else our business volume will be limited," country corporate officer Antony Leung said.

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