June 24, 2008 -- A rising number of foreign banks are expanding into China's second and third-tier cities. Chengdu, capital of the Sichuan province, in southwest China, is just one of them.

Fourteen foreign banks now have branches in Chengdu, according to Ge Honglin, the city's mayor. HSBC, Citibank, and BNP Paribas all have a presence in the city, for example. And, London-based Standard Chartered bank opened a new outlet in Chengdu in July 2007.

Today, Beijing, Shanghai and other first-tier cities are not the only hot spots for foreign banks' expansion.

Why are foreign financial institutions choosing to target Chengdu? One reason is that China liberalized its banking sector in April 2007, in line with the World Trade Organisation requirements. Now, foreign banks are allowed to do business in yuan and issue credit cards. Previously, foreign banks were not authorised to handle local currency accounts or offer domestic credit cards and were forced to work through Chinese partners. Before 2007, foreign banks were only allowed to offer yuan-denominated services in only a few select cities.

"In December 2003, Chengdu was one of the first China's western cities to open to foreign banks," said Xiaohu Tong, research director in Singapore for China Knowledge Ltd., a consultancy that provides news on the China market. "To many, Chengdu is a natural choice, it ranks second both in terms of GDP of bank deposits among all central and western cities."

HSBC is a leading example of the interest that foreign banks have had in the city.

"HSBC first set up a representative office in Chengdu in 1996 and upgraded it into a branch in 2005," said a spokesperson for HSBC China, who declined to be quoted by name. Today, the bank has one branch and two sub-branches in the Sichuan capital city, employing a staff of approximately 100 people.

"With the strong economic growth in Chengdu, the demand for wealth management services is increasing," the spokersperson added. "The bank plans to further expand the service and add more people to its current workforce to support its business expansion."

Infact, the city's gross domestic product has been rising fast. According to a report from Chengdu's government, the city's GDP reached 76.2 billion yuan for the first quarter of 2008, an increase of 15 percent compared to the first quarter of 2007.

Beyond offering health management services -- which typically requires a minimum balance of 500,000 yuan or more -- foreign banks in the city also offer a range of other services.

Citibank has had a branch in Chengdu since 2005, and has a staff of 35 people.

"Retail customers in Chengdu can select the regular service, which requires a minimum balance of 80,000 yuan or above," Stephen Thomas, director of corporate affairs for Citibank in Shanghai, told Emerging China . "It includes savings and investment products, mortgage loans and insurance."

And when it comes to Citibank's long term plans in the Sichuan capital city, Stephen said, "We will continue to improve our other services, tele-banking, fax banking and Internet banking".

Although, foreign banks in Chengdu offer services to multinationals and local companies, as well as Chinese residents and foreign nationals, China Knowledge's Tong said that foreign banks have only captured a small share of Chengdu market.

According to Tong, the extensiveness of Chinese banks' networks and their long term relationships with local enterprises and residents will help them keep their market dominance for at least the next ten years. "Foreign banks will and should play a niche, such as high-net-worth individuals and foreign enterprises," said Tong.

Where foreign banks establish their branches is dependent on the city. In addition to its large population of 10 million potential customers who enjoy growing purchasing power, Chengdu ranks in the top ten for livability and business climate.

This past April, the city municipal government announced the expansion of a facility to host banks' and insurance companies' data centers, call centers and credit card centers. The financial organisations will also enjoy preferential policies on power supply, telecommunication and technical support.

Chengdu's infrastructure and construction projects are also motivating foreign banks' investments. Due to the presence of Shuangliu international airport, Chengdu is an air hub for southwest China.

The city's airport ranks fifth in China for its number of passengers. According to a report in the state-owned China Daily newspaper, the municipal government also intends to transform the city into a logistics hub in western China by 2010. The construction of the Chengdu railway container center station will start soon, for example. This new transportation system will provide direct lines to Shanghai, Guangzhou, Shenzhen, Quingdao and other major Chinese cities. And, it will reduce transportation time from the current five to six days to just hours. In addition, Chengdu is planning the construction of four light railway lines from the city center as well as the opening of four expressways connecting the center of the city to its suburbs.

Aside from its transportation system, Chengdu is one of the major pharmaceutical research and development cities in China, a center for electronics and for other industries. In an interview with Emerging China, the mayor, Ge Honglin, said that 120 of the Global Fortune 500 have offices or branches in Chengdu, including IBM, Nokia and Motorola. All of them are potential customers for foreign financial organisations, he said.

"Foreign banks follow the footprints of their international clients," said China Knowledge's Tong.

Singaporean banks are no exception.

"Two of the three biggest Singaporean banks [United Overseas bank and Oversea Chinese Banking corporation] have a presence in Chengdu due to the close economic ties between the city and Singapore," he said.

Since 1996, the Singapore-Sichuan Trade and Investment Committee has assisted Singaporean firms to do business in the southwestern Chinese province. Additionally, Chengdu has sister city agreements with Asian cities as well as with European, American and African cities. Among them are Phoenix in the United States, Nairobi in Kenya and Montpellier in France. In 2005, the French city set up "la maison de Montpellier-Chengdu." This organisation helps French companies that wish to enter Chengdu's market.