OSAKA, Japan - Japanese banks, hungry for new markets, are turning from Europe and North America to Asia's big new frontier - China.

At least five Japanese banks are seeking to upgrade their offices in major Chinese cities to branch status.

Their appetite was further whetted by a recent report from the International Monetary Fund ranking China's economy third in the world, instead of 10th as under a prior method of calculation.

Sanwa Bank Ltd., Tokai Bank Ltd., Sumitomo Bank Ltd., Sakura Bank Ltd., and other leading banks said they are seeking to upgrade Chinese representative offices.

A spokesman for Tokai said, "Japanese manufacturers are quickly moving to China to help cut production costs, and Japanese banks can do more business there."

This marks a clear shift from the banks' expansion strategy, which was focused on the United States and Europe in the 1980s.

"North America and Europe are not interesting now" for banking business, the Tokai official said.

Tokai Bank is looking to upgrade its Shanghai and Guangzhou offices to full-fledged branches, with Chinese government approval.

A spokesman for Sanwa Bank said it planned to upgrade its Dalian office to a branch. It has branches in Shanghai and Shenzhen and representatives in Beijing, Guangzhou, and Tianjin.

Sakura Bank has offices in the same cities as Sanwa and plans to upgrade the one in Guangzhou to a branch.

"From now on, China will become a large market for banking business. If the present situation continues, we would like to upgrade representative offices to branches," said a Sumitomo Bank spokesman.

Shanghai is a possible place for a branch, said a spokesman of Mitsubishi Bank, which has four offices in China.

After opening its first branch in Shanghai in March last year, a Dai-Ichi Kangyo Bank Ltd. spokesman said, "We plan to expand the branch businesses step by step."

Dai-Ichi Kangyo, the largest bank in the world, has had a branch in Taipei since 1959, and China's approval of its Shanghai branch is seen as evidence of Beijing's increasing acceptance of Japanese banks' operating openly both in China and Taiwan.

Economic Growth Factor

What is attracting the Japanese banks is the rapid growth of China's economy and the foreign investment the growth is attracting.

In 1992, China's economy grew by 12.8%, the highest of any major country. Chinese official figures show Japanese investment in China in 1992 was $710 million, 34% higher than in 1991.

Bankers give another reason for the shift to China. The 1980s revolution in financial markets in the West attracted Japanese banks to New York and financial centers in Europe, but the stock and currency trading boom is virtually over in Japan.

Thus, Japanese banks focus more on traditional business like commercial financing, working closely with makers and retailers. That is what is in demand in China, they said.

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