China National Advanced Payment System: Need for Foreign Bank In China - Article Example

China National Advanced Payment System: Effects on Foreign Banks in China The China National Advanced Payment System (CNAPS) was established with intent to modernize China’s payment systems. The system was initiated on the basis of Chinese economic conditions as well as the experiences and other long term forecasts of some other developed courtiers. Subsequently, all foreign banks today in China are forced to operate according to China National Advanced Payment System. Obviously the banks which do not comply with CNAPS will face ranges of difficulties.

This paper will analyze foreign banks’ disadvantages of not using CNPAS while operating in Chinese business environment. Under CNAPS, there is a technical infrastructure called China National Financial Network (CNFN) which binds different banking institutions with the regional and national processing centers (China Window). As a result, banking operations in the country are highly coordinated and it contributes to the overall operational efficiency of banks. At this juncture, when foreign banks operate without practicing CNAPS, they fail to take benefits from the established technical infrastructure.

Evidently this condition will affect the smooth business operation of those banks in Chinese market. The CNAPS provides advanced facilities like High Value Payment System (HVPS), Bulk Electronic Payment System (BEPS), and bank card authorization system (Payment systems). When foreign banks operate beyond the framework of CNAPS, they do no get access to the advanced and feasible banking facilities. The CNAPS employs improved clearing house facilities and it provides greater efficiency to the banks that operate under CNAPS.

Since foreign banks deal with large volumes of transactions, they have to largely depend on clearing house facilities. Therefore, foreign banks that do not use CNAPS would face considerable challenges during account clearing processes. The CNAPS has designed a funds transfer system which seems to be the core of payment application systems. It is a RTGS-based system which operates under the direct control of People’s Bank of China. The major significance of this system is that it provides same day settlement for payment transactions in dealings like foreign exchange, financial markets, securities markets, and interbank fund transfers (China Window).

It is obvious that the system of same day settlement for payment transactions would greatly increase the operational efficiency of banks and this facility would not be available to foreign banks which do not adhere to CNAPS. In addition, the funds transfer system also offers ranges of other facilities such as net settlement for bank card payment, BEPS and LCHs which are controlled by major commercial banks. Therefore, foreign banks will have to depend on ordinary banking practices if they do not use CNAPS.

The CNAPS does not distinguish interbank payments from intrabank payments or national payments from local ones since its major objective is the formation of an integrated national market (iAMTN). This concept envisages ranges of fruitful outcomes which would not be available to foreign banks in China without CNAPS. Similarly, the People’s Bank of China (PBC) offers limited intraday credit facilities to the participants of this system; and foreign banks would not get access to this credit if they do not comply with CNAPS.

From the above discussion, it is clear that foreign banks that operate in China without CNAPS will have to confront with several constraints. In short, foreign banks without CNAPS would not get access to ranges of improved facilities that the PBC offers to regional banks. References iAMTN-International Association of Money Transfer Networks, viewed 4 June 2011 Payment systems, China, Core principles of systematically important payment systems, eStandards Forum: Financial Standards Foundation, viewed 4 June 2011 Payment System in China, China Window, viewed 4 June 2011