A picture of HSBC.

Foreign banks need to convert their branches in China into locally incorporated companies to conduct the coveted¹ renminbi retail² business, according to rules released late on Wednesday.

The requirement is aimed at preventing global financial woes³ of foreign banks from spilling over to their branches in China, Song Dahan, vice-minister of the State Council's Legislative⁴ Affairs Office, said yesterday.

When a bank registered overseas is hit by a financial crisis, the interests of depositors in the country where the bank is registered are usually considered ahead of depositors at branches in other parts of the world.

So the local-incorporation⁵ requirement will help protect Chinese individuals who deposit money in foreign banks operating in China, Song told a news conference arranged by the State Council Information Office.

"This requirement is consistent with China's WTO (World Trade Organization) commitments," Song said. "It is also in line with international norms and the principle of prudential supervision⁶ supported by the WTO."

"We believe that local incorporation will enable us to further expand our network and service range, in particular our RMB financing ability, for the benefits of the customers in Chinese market." Richard Yorke, China CEO of HSBC, said in a statement.

The rules, which take effect on December 11, fulfil the last commitments on opening up the banking⁷ sector⁸ China made when it entered the WTO five years ago.

From December 11, Chinese and foreign banks will be under a unified⁹ regulatory system; and the current restrictions¹⁰ on overseas banks' locations and choice of customers will be lifted.

Currently, foreign bank branches need the regulator's approval to offer any kind of service involving the Chinese currency. From December 11, all foreign branches will be allowed to accept time deposits of at least 1 million yuan (US$125,000) by private Chinese individuals.