When Fujian Asia Bank opened its doors in early 1993, the fanfare could best be described as moderate. The lender was only the third Sino-overseas joint-venture bank on the mainland and touted its Fuzhou office and registered capital of US$30 million as but a stepping stone to bigger and better things: more branches and a wider geographical scope. The bank stuck to its original focus of financing foreign joint-venture projects in Fuzhou, where Taiwan provides 40 per cent of foreign investment. As a result, for the next 10 years, Fujian Asia Bank turned out to be one of the less conspicuous foreign-invested players on China's financial landscape. Last week, however, the bank found itself in the limelight as the latest acquisition target of HSBC and a subsidiary of Ping An Insurance, China's second-largest insurance firm. Both will take a 50 per cent stake in the Fuzhou lender, with HSBC paying up to US$20 million. Ping An's subsidiary, China Ping An Trust & Investment, has agreed to inject a further US$23 million into the lender, taking its paid-up capital to $50 million. With assets of just US$32.7 million and a small loan book, the picture painted by HSBC was one of a long-term play. In the words of a spokesman: 'It's what it will become rather than what it is.' This seems to sum up the mindset of foreign banks about China's banking market. It is the potential to tap US$1.3 trillion in savings that has many foreign banks asking themselves whether to sink money into a market unlikely to yield large returns anytime soon. Eye-catching loan growth and the rising affluence of a new middle class desperate for mortgages and credit cards is for the taking under China's World Trade Organisation commitments, which will open these businesses to foreign lenders by early 2007. In the meantime, however, foreign banks must grapple with hefty capital requirements and limited services. If they want to do yuan business in 2007, foreign banks must also have a three-year operational track record in China and be profitable for two consecutive years before application. Taking a stake in an existing bank is, however, one way to tap branch networks and relationships, establishing a foothold. A number of foreign banks took the plunge last year by way of acquisitions or increasing their existing shareholdings. HSBC's decision to take a 50 per cent stake in Fujian Asia Bank was preceded by Hang Seng Bank's announcement that it would pay HK$1.62 billion for a 15.98 per cent stake in Industrial Bank, China's 12th largest lender. The deal would make Hang Seng the largest foreign investor in a mainland bank after ownership limits were raised in December by China Banking Regulatory Commission, which is keen to promote further overseas investment in the sector. The ceiling on foreign ownership in mainland banks by a single overseas investor was raised to 20 per cent from the previous 15 per cent, giving foreign banks greater scope in a market where they lay claim to just 1.4 per cent of the total assets in China's banking sector. In Hang Seng's case, the price tag was dubbed by analysts as being on the high side - the acquisition amounted to 1.5 times book price. But the bank has a fairly clean bill of health, with a non-performing loan ratio of just 2.57 per cent. One of Fujian Asia Bank's main attractions for HSBC is the potential to develop a credit card and personal loan business at the second-tier bank, which has 240 outlets and assets of 189.66 billion yuan. Citigroup unit Citibank set the investment ball rolling last January when it took a 5 per cent stake in Shanghai Pudong Development Bank and an option to raise its stake up to a maximum of 24.9 per cent. As a joint-stock commercial bank, Shanghai Pudong has become a serious rival to the Big Four state-owned banks, while city commercial banks such as Bank of Shanghai have become preferred partners for banks such as HSBC - which has an 8 per cent stake - and the International Finance Corp (IFC), which owns 5 per cent. IFC also lays claim to minor stakes in Nanjing City Commercial Bank and Xian City Commercial Bank. The experience of Newbridge Capital, however, has led some bankers to question the wisdom of pouring money into a mainland lender. The United States fund wanted to buy an unprecedented 15 to 20 per cent slice of Shenzhen Development Bank, but the deal went sour in May when the Chinese bank broke up a Newbridge-led management committee that was supposed to have closed the deal. In November, Newbridge launched arbitration proceedings against shareholders of the bank, seeking compensation for the botched acquisition. Newbridge's experience underscores one of the problems facing foreign lenders in China - control. Mainland lenders are reluctant to relinquish power, despite an aching need for foreign banks' capital and expertise. Overseas banks will therefore continue to sit on the sidelines of China's banking sector. But those with a more acute sense of timing - and a greater appetite for risk - may choose to join the ranks of HSBC, Hang Seng and Citibank, and steal a march this year.