Partners find way in
BANKS are anxious to find ways into the China market.
While China is happy to give licences to big Hong Kong and international banks and allow them to open representative offices, small banks in Hong Kong feel left out.
The likes of Hongkong Bank and Standard Chartered Bank have already positioned themselves in major cities, but their small and medium-sized competitors have found no way in.
The latter need to find powerful partners to help them compete. International Bank of Asia (IBA) is the latest to do so.
The private placement to China Everbright Holdings of a 20 per cent stake in the bank is reminiscent of at least three similar arrangements.
Twenty per cent of Manhattan Card Co, listed in July, was placed with CITIC Pacific, the subsidiary of the Beijing-based state giant, China International Trust and Investment Corp.
The recently relisted First Pacific Bank managed to join up with two state-owned arms of the Ministry of Foreign Economic Relations and Trade (MOFERT).
And China Resources (Holdings) has increased its 15 per cent stake in Hong Kong Chinese Bank to 50 per cent.
Since these arrangements are relatively recent, their success is still hard to gauge. But IBA has decided to set up a joint-venture bank with its partner.
Joint-venture banks can take advantage of the strength and technical know-how of the foreign partner and the network and expertise on the China market of the local partner.
They can act as agents for the local partner and operate yuan business, indirectly allowing foreign banks to operate yuan business.
But the laws governing joint-venture banks have not been drafted, leaving many questions unanswered, such as what tax advantages have been awarded these banks and what interest rate they are allowed to offer.