China has given a new dimension to its financial sector reforms by ordering a development financial institution to enter commercial lending in a big way. In doing so, the government has managed to create a second line of defense for the domestic industry within six weeks of allowing foreign banks to enter the retail banking sector.

China Development Bank, one of the largest development institutions that has so far been focused on major project lending, will now take the battle to the streets competing with the domestic commercial banks and the new entrants from foreign countries.

CDC has also been asked to lead the way for two retail banks, China Export and Import Bank and the Agricultural Development Bank of China. This is an indication that CDC might actually be allowed to enter lending to the foreign trade sector as well. The decision was taken at a three-day "national financial work" conference, which takes place once in five years.

China has implemented its promise to WTO for fully opening up the financial sector to international competition by December 2005. It threw the doors open to foreign banks doe retail banking and issued licences to the first batch of six foreign banks in November.

But government followed it up with a move to spin off one part of the China Postal service into a retail bank, making the newly created China Post Bank the biggest retail bank with the largest spread of branches in the country.

The second move about pushing China Development Bank in the retail arena would result in another hurdle for the growth of foreign banks and effectively protect the domestic industry. However, the government assured "fair competition" between domestic and foreign financial institutions and advance financial collaboration between the mainland, Hong Kong and Macao.