China's commercial banks need to improve their business differentiation and services for local residents and small firms, Yi Gang, vice governor of China's central bank, said on Saturday.

"China's commercial banks have a similar business model and lack unique business features," Yi, vice governor of the People's Bank of China (PBC), said at a forum hosted by Peking University.

Many city commercial banks are striving to outpace their peers in establishing more branches instead of improving their services for local residents and small companies, he cautioned.

China's commercial banks don't have unique features in credit card services or in their real estate and automobile sector businesses, Yi said.

The opening of China's financial system and introduction of foreign and private capital will help enhance differentiation and competition among commercial banks, so they can find their differentiation strategies, Yi said.

China is also pushing forward reforms in establishing a deposit insurance scheme, interest rate liberalization, and building its financial infrastructure, he added.