Clouds hover over promise to open financial services
During his four-day visit to the US last week, President Hu Jintao promised to honour Beijing's World Trade Organisation commitments by expanding access to American companies eager to tap the mainland's potentially lucrative markets for financial services and other industries.
But back home, heavy clouds appear to be hanging over test cases involving the acquisitions of two small shareholding banks in Guangdong by American financial services giants.
With the arrest of its former chairman in March, and the abrupt departure of its foreign president in February, Shenzhen Development Bank (SDB) is heading into uncertain territory.
Speculation has begun to emerge over the bank's relationship with its single-largest shareholder, the US private equity firm Newbridge Capital, which took a 17.89 per cent stake in the lender in late 2004.
Meanwhile, a bid led by US banking giant Citigroup for a controlling stake in Guangdong Development Bank (GDB) also appears to have stalled over political issues on the mainland.
Their troubles appear to have stemmed from the central government's intense wrangling over the merits of allowing foreign control of a domestic bank, vacillating regulators and the inherent dangers of the mainland's chaotic banking system. As one industry source wryly put it, the two American firms are not unlike people walking into a deep, muddy pond without a good sense of its depth.
The issues surrounding the Citigroup-led bid for GDB are relatively easy to decipher. Banking sources say mainland regulators delayed approval for the Citigroup consortium - which also includes the Carlyle Group, a US buy-out financial specialist - to buy 85 per cent of the lender.
Although both Mr Hu and Premier Wen Jiabao vowed to push ahead with economic reforms in March, domestic opposition to the sale of large mainland companies - banks in particular - remains strong.
As the debate has taken on a strong nationalist tone, regulators have been unusually slow in approving acquisitions of large Chinese companies and banks out of fear of being accused of selling state assets cheaply and jeopardising the nation's economic and financial security.
Carlyle's landmark 3-billion-yuan takeover of Xugong Group, China's largest construction equipment maker, has also been reportedly stalled by regulators, although recent state media reports suggest the Ministry of Commerce, one of the regulators, has approved the deal.
Amid the rising nationalist sentiment, domestic financial services firms such as Pingan Insurance are also said to be lobbying behind the scenes to allow domestic companies to have a shot at the two banks.
However, industry sources say if Citigroup's bid is blocked, a consortium led by the French bank Societe Generale and the mainland's Baosteel group could stand a better chance, as Societe Generale's bid would not violate current rules limiting foreign investments in domestic banks to 25 per cent.
Meanwhile, the case involving SDB is more complicated.
Some mainland banking sources say the bank's foreign management is showing serious signs of 'not being acclimatised'.
In February, Jeffrey Williams, SDB's president since December 2004, stepped down quietly without giving a specific reason. Some sources say Mr Williams' aggressive attempts to modernise the bank were met with opposition from the bank's other shareholders and managers.
To compound the woes, the bank confirmed last month that Zhou Lin, its former president, chairman and party secretary, had been detained on suspicion of illegally extending 1.5 billion yuan in loans which were now non-performing.
The problematic loans were apparently spotted after Newbridge's managers moved in. Mainland sources said this could possibly lead to Newbridge filing compensation claims.
As Newbridge's foreign management is struggling to push through reforms, its relationship with the Shenzhen municipal government and other Chinese shareholders of the bank has become more fragile.
