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China Relaxes Restrictions on Foreign Banks Investing in Western Provinces

State media report that the China's banking regulator has relaxed its policy, so that foreign banks will be able to directly set up branches in the country's western provinces.

Under the old rules, a foreign bank had to maintain a representative office in a city for at least two years before it could open a branch to do regular banking business in any city.

Paul Tang is an economist for the Bank of East Asia in Hong Kong. He welcomes the latest move, and says the old regulation is inconvenient and needed to change.

"You know in China, to do bank business, there is a lot of bureaucracy, restrictions, keeping you from doing certain business," said Paul Tang. "In the western part of China, we see that the central government really has the interest to speed up development, and foreign banks are the natural partners. The latest policy is a win-win situation. For the central government also for foreign banks."

The new policy apparently is part of the government effort to ease poverty in the west. Beijing initiated its "go west campaign" several years ago to help the region catch up with the industrialized east coast.

The west, which includes provinces such as Xinjiang and Tibet, covers more than half of China's territory, and much of it is rich with natural resources such as coal, oil and gold. However, since the region is thousands of kilometers from ports, it has been overlooked by Chinese and foreign companies that have set up thousands of factories to make export goods in the east.

Since the development campaign began, the western provinces have seen an increase in investment.

Mr. Tang says foreign banks are likely to be eager to open branches in western China, to try to capture more market share.

"We are seeing that investment activities in [the] western part of China are speeding up," he said. "So for those [banks] who have a commitment to the mainland market, they would naturally want to have a presence in those areas."

At least one foreign bank has already applied to open a branch in one western city, and others are reported to be showing interest.