FOREIGN investors in China who assume foreign exchange will be available readily are doing so at their peril, says Pacific Rim Consulting Group managing director, George Baedera. Mr Baedera said that while the Chinese Government had the correct idea in working towards an effective foreign-exchange regime, this would take decades. Meanwhile, the availability and supply of foreign exchange in China was unpredictable. 'If we don't focus on this risk in the next 12 to 18 months, some of us are going to be seriously blind-sided by an inability to gain foreign exchange,' he said. Mr Baedera said that in about 20 major cities on the mainland, swap centres and banks use the same staff and computers. 'That does not mean, however, that you are trading on the interbank system,' he said, warning that there was no guarantee that China would continue to treat swap centres as a broker for selling foreign exchange to companies. 'Companies that have not met their original schedules for forex balancing are at risk, but not immediately,' Mr Baedera said. He said the People's Bank of China's (PBOC) procedure for funding the swap markets was abhorrent and companies should aim to balance their own forex supply. Forex balancing could be used as a weapon by competitors. However, the option of using exchange controls to manage China's monetary policy problems was inviting to the government as large import demand was leading to massive foreign borrowing, and service-sector controls were eroding. The grip of the State Administration of Exchange Control (SAEC) was tightening and a company had to acquire a Foreign Exchange Registration Certificate (FERC) to operate a Foreign Investment Enterprise foreign exchange account, Mr Baedera said. The SAEC would examine companies for their foreign exchange capability and would renew FERC's annually. Senior vice-president and general manager of Chase Manhattan Bank, Richard Mounce, said that access to swap markets or enforcement of contracts was not a stable base on which to apply for a loan. He said foreign investors should be over-funded and should not assume that banking facilities would be available once the project was underway. 'China needs a national market for currency before an international foreign exchange market is achieved,' Mr Mounce said. 'At this stage, the banks are not banks. They are vast bureaucracies that are told what to do.' His vision for the commercialisation of the banking sector includes selling minority shares in some banks to pay off loans and give employees incentive to continue reform. Mr Mounce said that an active and liquid interbank money market for yuan and renminbi runs in parallel with such a commercialisation process and it was a good sign that local currency businesses could begin in China as early as next year. Mr Mounce and Mr Baedera agreed that the major hurdle to progress in China's banking and finance sectors was that local currency was not convertible and it could be decades before it was.