In April, Chinese regulators gave permission to four foreign banks, including American giant Citibank, to incorporate locally. That brought the total number to 12.
　Incorporation means that the bank can do business in yuan and issue credit cards. Previously, foreign banks were only allowed to handle foreign-currency accounts, and were only able to offer credit cards through partnership deals with local partners.
　Now Citibank and the other three banks -- HSBC, Standard Chartered, and Hong Kong's Bank of East Asia – are going to be competing with domestic banks in full force. And they are not alone.
　Previously, eight other foreign banks, including Hong Kong's Hang Seng Bank, the Bank of Tokyo-Mitsubishi UFJ and JPMorgan Chase Bank, received permission to incorporate locally, according to the statement of China Banking Regulatory Commission.
　Foreign banks are eager to break into China's retail market, which has 30 trillion yuan (US$4 trillion) in household savings and surging demand for credit cards and other financial services as incomes rise.
　The incorporation announcements were spurred by a change in regulations. Last December, in line with World Trade Organization requirements, China finally opened up its banking sector to foreign players. In addition to offering credit cards, foreign banks will also be able to offer yuan-denominated mortgages, wealth management products, deposits and personal loans.
　All the banks except for Citigroup have already announced intentions to launch their own branded credit card. Citigroup and HSBC have previously issued credit cards in cooperation with Chinese partners.
　Credit cards are not the only potential profit center for foreign banks coming to China. Last year, individual housing loans topped 2 trillion yuan (US$260 billion), according to government statistics, and foreign banks want to get a slice of that business as well.
　HSBC and Standard Chartered have already announced that they plan to offer mortgage loans. For the Bank of East Asia, the mainland mortgage market is as important as Hong Kong's, where the bank holds more than a 50% market share.
　Since interest rates are set by the central bank, foreign lenders are likely to market themselves as offering better service in order to attract Chinese borrowers.
　Foreign banks do not have to incorporate locally, of course, but incorporation gives them certain advantages – and allows regulators to keep a closer eye on them.
　For example, without incorporation, foreign banks could not accept deposits of less than 1 million yuan (US$ 130,000) through their representative offices.
　"Foreign banks also can choose to keep representative offices if they want to focus on the wholesale business," Wang Zhaoxing, deputy chairman of the China Banking Regulatory Commission, said in a statement. "However, we prefer they incorporate in China to benefit depositors and for the stability of Chinese financial market."
　However, setting up a branch is not easy. In order to establish a China-incorporated entity, 1 billion yuan in registered capital is required, and each branch must have 100 million yuan in capital, according to the new regulations.
　In addition, the local branches become separate entities from the bank's other international operations.
　"A localized foreign bank's branch might lose the flexibility to mobilize funds from headquarters abroad and the credibility advantage they previously had," says Cao Yuanzheng, a senior analyst at BOC International (China) Limited, a Shanghai-based multinational securities company, in an interview with The Investors,a Beijing-based state-owned business magazine.
　Meanwhile, as foreign banks are coming into China, China's own banks are racing to modernize in preparation for the influx of competition.
　The Industrial and Commercial Bank of China (ICBC), China's largest bank and a business partner of American Express, is one of the Chinese banks concerned about the coming competitive environment.
　"It's a big challenge to all Chinese banks because usually foreign banks are renowned for their good services," a manager with the ICBC Credit Card Center told ViaMei on condition of anonymity. Founded in 1984, ICBC has the largest customer base among banks in China. After ICBC's IPO last October, it became the fifth-largest bank in the world.
　Alistair Scarff, director of Asia Pacific financial institutions research at Merrill Lynch, said in a report that foreign banks have international management standards, advanced facilities and good services.
　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 told state owned media late last year.
　In a recent report, Merrill Lynch analysts confirmed that domestic banks do have some competitive advantages. Among them are good relationships with government officials and established reputations with customers.
　And, at present, foreign banks have a total market share of less than 2 percent in China, according to government reports.

Wang Fangqing contributed to this report.