China's financial industry went through a big year in 2006.
　　Until December, foreign banks in China were only allowed to do business in foreign currencies. So far, there are 195 branches of foreign banks in China with total assets of over $100 billion, but this accounts for only 2 percent of banking assets in China.
　　"When you are able to do local currency business, the more presence you have, the better off you are," said Linda Wong, country executive for ABN AMRO China.
　　In addition, foreign banks are starting to move into China's central cities, as geographic restrictions continue to be lifted.
　　ABN AMRO opened a branch in Chengdu in November and is planning a branch in Chongqing. Chengdu is China's 10th largest city, while Chongqing is China's third-largest. Both are located in the center of China.
　　The increasing presence of multinationals and the rising affluence of an emerging middle class attracted ABN AMRO to the Chengdu and Chongqing markets, Wong said.
　　When it comes to overall banking service satisfaction, Chinese banks score lower than average - coming in at 62, compared to the global average of 70, and far below North America's 77, according to a new report released by TNS China, Inc.  TNS calculates its index based on a combination of a customer satisfaction survey and customer retention rates.
　　With foreign banks coming to China in full force, consumers here will finally get to experience Western-style customer service - and local banks are concerned. Even China's largest bank, the Industrial and Commercial Bank of China, which recently held a record-breaking $21 billion IPO in Hong Kong, is not ignoring threats from abroad.
　　In particular, foreign banks are expected to do a better job serving high-value customers, and handling sectors where Chinese banks have little experience, such as credit cards.　　
　　But Zhang Jianguo, president of China Construction Bank Corp. says the threat from abroad is small.
　　"No matter how many foreign banks come into China, it will take a long time for them to catch up to Chinese banks in branch coverage and client base," he said in an interview with Beijing-based Financial News, a state-owned financial newspaper.
　　A report from Merrill Lynch indicates good relationships with the government and sound reputations in China are advantages for local banks. Alistair Scarff, director of Asia Pacific financial institutions research at Merrill Lynch says in the report that foreign banks have international management standards, advanced facilities and provide good services.
　　Strictly controlled interest rates are also a barrier for foreign banks. But recently, a plan to liberalize interest rates will help create a level playing field between foreign and Chinese banks, experts said.
　　"We believe the government will liberalize interest rates gradually, but it will take a long time," said Qu Hongbin, HSBC chief economist, at an economic conference in early January.
　　In addition to the banking system, China's securities industry is also opening to the world.
　　The Chinese government allowed nontradable, state-owned shares to be sold publicly, paving the way for true privatization of Chinese firms. And regulators took serious steps to clean up China's ailing securities companies. As a result, the Chinese stock market reversed its long slide and hit new highs.
　　Meanwhile, the Qualified Foreign Institutional Investor arrangement, which was launched in 2002, is the first step into the global capital market. According to the regulations, QFII can invest in yuan-denominated stocks, otherwise available only to Chinese investors.
　　China's top securities regulator said that foreign investment quotas will continue to be expanded, and analysts predict that the total allowed for foreign institutional investors could go from $8 billion to $40 billion in the next three years.
　　"We want to steadily expand the size of the qualified foreign investor program and the areas of investment for the program," said Shang Fulin, chairman of the China Securities Regulatory Commission at the fifth annual international securities investment conference held in Shenzhen in December. He did not give specifics, however, about when the increases would take place. Shang said that this expansion was necessary to help enlarge the role of institutional investors and help the capital markets develop.
　　In 2006, regulators approved 18 foreign institutional investors with combined quotas of $3 billion, bringing the total number of approved foreign institutional investors to 52.
　　Meanwhile, the Chinese futures market has started to open gradually too.
　　For example, foreign asset managers have begun to move aggressively into China's Qualified Domestic Institutional Investor (QDII) program, a path by which Chinese investors can buy foreign securities.
　　Schroders, an asset management company headquartered in the UK with $229.4 billion under management, announced in December that it will enter this market.
　　"We are looking to develop Schroders business in the area of international asset mandates from domestic institutions," said Lester Gray, CEO of Schroders Asia Pacific. "We will also be working with our joint venture on the development of QDII products as this part of the market continues to open."
Wang Fangqing contributed to this report.