New regulations on foreign banks are designed to ensure a smooth transition when China fully opens its banking sector to foreign lenders at the end of the year, said a Chinese financial expert in Beijing.

The regulations will not have a major impact on foreign banks already operating in China, said Ba Shusong, vice director of the financial institute of the State Council Development Research Center.

They will help establish a platform for fair competition between Chinese and foreign banks, he said.

China's State Council's executive meeting last week approved in principle the draft of the regulations on the administration of foreign banks, one month ahead of the opening of the banking sector.

According to the draft regulations, foreign banks which choose to incorporate their business locally and set up a subsidiary in China, will be able to provide RMB business services to Chinese individual customers and issue bank cards.

The China-registered subsidiary will be a corporate entity under Chinese law and as such supervised by Chinese banking authorities.

If the foreign bank decides to continue to run its Chinese operation as branches operated from overseas, it will not be able to issue bank cards and will have to apply to carry out a limited range of business with Chinese individuals, said the draft regulation.

Branches of foreign banks remain under the direct control of their headquarters and as such are supervised by banking regulators in their home country.

Ba said linking the range of business services a foreign bank can offer to its corporate status is perfectly logical because China's banking regulator has different levels of supervision for different types of banking operations.

"The regulation complies with practice in developed countries such as the United States and Australia," he said.

Ba said RMB business services for Chinese individuals are growing rapidly and the profit returns are high, but surveillance of these services is looser than in many developed countries.

Since it is more costly to set up a corporate entity in China, the regulation will help protect domestic banks, he said. The measure also complies with WTO rules.

Ba said major foreign banks such as HSBC, Citibank and Standard Chartered Bank have expressed their willingness to incorporate their business locally in China and set up a corporate entity. He said these banks are expected to be among the first batch of foreign lenders to qualify for RMB business services for Chinese individuals.