The WTO timetable stipulates that foreign banks will have full access to the domestic market by 2006. Are China's banks ready for this competitive challenge?

With China’s admittance to the World Trade Organization (WTO) in 2001, China will not only benefit from the international trade advantages that come with being a member, but will also be required to pay back in kind by opening its markets to foreign entrants. One of the most crucial sectors to be affected will be China's banking industry, not least because the banking sector is one of the weakest industries in China, saddled by bad debt and under-performing assets. In a new report, Strangers at the Gate:Foreign Competition for China’s Banks, Celent Communications outlines issues that China’s banks will need to address in order to maintain competitiveness as some of the world’s leading banks enter the domestic market.

"It is not a given that China’s banks will be able to hold their own once new participants are allowed to operate in the market," comments Neil Katkov, author of the report. "Indeed, the Big Four banks have lost 20 percent market share to smaller players over the last 15 years. There is every reason to believe the foreign entrants will pose at least as formidable a threat."

The report recommends a three-pronged approach to China’s banks: providing enhanced retail services, building world-class corporate banking capabilities, and developing a unified information technology infrastructure.