China will allow three to five fully private banks to be set up this year as part of efforts to further open up the sector, the banking regulator said.

At a work conference on Monday, the China Banking Regulatory Commission (CBRC) said it will allow private capital either to take part in restructuring existing banks or set up new ones at their own risk, according to a statement.

"The first batch of three to five private banks will be set up on a trial basis," the CBRC said, adding they will be approved when conditions are "mature".

Communist authorities retain a strong grip on the economy. At present almost all banks are state-owned, either at the national or local level, although some have floated minority stakes.

Senior bank officers must be approved by the CBRC.

The latest move is in line with a document released in November after a key Communist Party meeting at which Beijing pledged to open up its financial sector to both foreign and private capital.

But in a sign that controls would only be loosened so far, the regulator said the new entities would be subject to strict procedures and enhanced supervision.

So far nearly 70 private banks have won tentative approvals from China's industry and commerce authorities, the state-backed Securities Daily reported.

Companies keen to establish private banks include home appliance retailer Suning and Internet giant Alibaba, which has an existing third-party payment business division, state media said.

The CBRC also pledged gradually to relax restrictions on foreign capital entering the domestic banking sector and conducting yuan business.

EU official says China's financial sector largely closed
Beijing (AFP) Jan 07, 2014 - China's financial sector is not open enough to foreign participation and key obstacles remain to investment, a top European Union official said Tuesday.

"Chinese banks are some of the biggest and most powerful banks in the world," Michel Barnier, European commissioner for internal market and services, told reporters.

"They shouldn't and do not fear competition," he added.

Barnier spoke at the end of a visit to China for talks with officials, including Finance Minister Lou Jiwei.

The 28-nation EU and China announced in late November the launch of negotiations for a landmark investment agreement, even as they clashed bitterly last year over commercial disputes ranging from Chinese solar panels to European wine.

Barnier complained that foreign banks take up a mere two percent of the Chinese market.

"So there is definitely room for progress," he said, adding that more openness in China's banking sector is in its own interest.

"We hope that European banks can be welcomed in China as we welcome Chinese banks in Europe," he said.

Barnier cited as obstacles restrictions on investment levels in joint ventures and the difficulty in obtaining licences for banking or insurance activities.

"It's difficult to get licences," he said. "There are many difficulties for foreign companies because of these controls or restrictions. These are obstacles to the participation in the Chinese market."

Barnier, however, praised as progress an emphasis on "rule of law" in decisions taken by China's ruling Communist Party at a key meeting in November, that made commitments to various social, economic and legal reforms.

"This is a very good thing," he said, also praising China's opening of its auto insurance market to European and other foreign companies.

EU trade chief Karel De Gucht in November urged the bloc to defend itself more aggressively against China, saying it would not "get anything from the Chinese by being polite".