It was always inevitable, but the competition in China's banking sector is starting to heat up.

While foreign firms have traditionally found the regulatory environment and staffing problems as the most difficult part of doing business in China, a new factor now looms as the single biggest barrier to succeeding here: competition from domestic banks.

In its fifth annualsurvey of foreign banks in China, PricewaterhouseCoopers ranks the most difficult things about doing business in China based in interviews with CEOs, senior executives and branch managers of 42 foreign banks in China.

In the 2010 survey, 'competition from domestic banks' ranked No. 1 for the first time, beating out 'regulatory environment,' which has topped the survey for the last two years.

The rebalancing of foreign managers' outlook hasn't happened overnight. Domestic competitors came in a respectable second place last year, albeit for very different reasons.

In 2009 foreign banks saw declining market share as foreign companies operating in China--a key constituency--borrowed less. Moreover the global financialcrisis made foreign banks' own lending policies less enthusiastic while global headquarterssimultaneously became more conservative. That put domestic banks--who were lending aggressively and at low interest rates--in a great position to pick up clients from foreign banks both domestically and overseas.

But 2010 is different. With the pace of lending by local banks slowing down and foreign banks now more sure of themselves, the dynamic should be more akin to 2007--when concerns about domestic competitors ranked only ninth in the PwC survey.

What's changed is that Chinese banks are getting better.

'With their extensive branch networks and rising service expertise they are much better placed to fend off competition from foreign banks in target markets,' says the 2010 report. 'The limited product range approved for deployment by the foreign banks means it is increasingly difficult for them to differentiate their products from their domestic counterparts.'

So, what's a foreign bank to do? The survey offers a few hints.

More than three-quarters of the respondents indicated that they saw themselves making acquisitions in China some time in the next three years, well above the roughly 50% of respondents who said as much in 2009 and 2008. (The potential target areas are asset management, securities, leasing, rural banking, insurance, consumerfinance, private equity, factoring and trust companies).

Another thing to watch might be more banks setting up locally incorporated units in the next few years. Such a change in status, which allows banks to offer a wider array of products, is potentially a key move for banks trying to differentiate themselves.

Currently just over 30 foreign banks have locally incorporated. The survey suggests the foreign bank community expects another 10-15 of their peers to undergo the process by 2013.

With the survey putting foreign-bank market share at around 2%, there's certainly room for expansion. But with local banks showing signs that they're learning the business quickly, foreign banks may have to look for innovative new ways to make their mark.

Dinny McMahon

• competition [,kɔmpi´tiʃən] n.比赛；竞争 (初中英语单词)
• factor [´fæktə] n.因素；原动力；要素 (初中英语单词)
• domestic [də´mestik] a.家庭的；本国的 (初中英语单词)
• annual [´ænjuəl] a.每年的 n.年刊 (初中英语单词)
• survey [´sə:vei] vt.&n.俯瞰；审视；测量 (初中英语单词)
• moreover [mɔ:´rəuvə] ad.再者，此外，而且 (初中英语单词)
• financial [fi´nænʃəl] a.金融的，财政的 (初中英语单词)
• headquarters [´hed,kwɔ:təz] n.总部(署)，司令部 (初中英语单词)
• extensive [ik´stensiv] a.广阔的；大量的 (初中英语单词)
• management [´mænidʒmənt] n.管理；处理；经营 (初中英语单词)
• finance [´fainæns] n.财政；金融 vt.资助 (初中英语单词)
• undergo [,ʌndə´gəu] vt.经历(受)；遭受 (初中英语单词)
• learning [´lə:niŋ] n.学习；学问；知识 (初中英语单词)
• inevitable [i´nevitəbəl] a.不可避免的 (高中英语单词)
• environment [in´vaiərənmənt] n.郊区；周围；条件 (高中英语单词)
• barrier [´bæriə] n.栅栏；屏障；障碍 (高中英语单词)
• senior [´si:niə] a.年长的 n.前辈 (高中英语单词)
• respectable [ri´spektəbəl] a.可敬的；有身价的 (高中英语单词)
• crisis [´kraisis] n.转折点；危机 (高中英语单词)
• enthusiastic [inθju:zi´æstik] a.热情的，热心的 (高中英语单词)
• conservative [kən´sə:vətiv] a.保守的 n.保守者 (高中英语单词)
• limited [´limitid] a.有限(制)的 (高中英语单词)
• roughly [´rʌfli] ad.粗糙地；毛糙地 (高中英语单词)
• potential [pə´tenʃəl] n.&a.潜在的；可能的 (高中英语单词)
• consumer [kən´sju:mə] n.消费者；用户 (高中英语单词)
• community [kə´mju:niti] n.团体；社区；公众 (高中英语单词)
• expansion [ik´spænʃən] n.扩大；膨胀；发展 (高中英语单词)
• banking [´bæŋkiŋ] n.银行业 (英语四级单词)
• outlook [´autluk] n.眺望；景色；展望 (英语四级单词)
• overnight [,əuvə´nait] ad.通宵 a.昨晚的 (英语四级单词)
• simultaneously [,siməl´teinjəsli] ad.同时，一起 (英语四级单词)
• increasingly [in´kri:siŋli] ad.日益，愈加 (英语四级单词)
• setting [´setiŋ] n.安装；排字；布景 (英语四级单词)
• status [´steitəs] n.身份；情形；状况 (英语四级单词)
• trying [´traiiŋ] a.难堪的；费劲的 (英语四级单词)
• beating [´bi:tiŋ] n.敲；搅打；失败 (英语六级单词)
• albeit [ɔ:l´bi:it] conj.即使；纵使；虽然 (英语六级单词)
• equity [´ekwiti] n.公平；公正 (英语六级单词)