CHINA / Foreign Media on China
Backlash puts China finance deals on hold
by Financial Times
Updated: 2006-03-16 14:26
http://news.ft.com/cms/s/b0d074b2-b41c-11da-bd61-0000779e2340.html
A backlash against foreign investment in China's finance sector is
holding up approval for a number of high-profile deals pairing overseas
companies with troubled local banks and brokerages.
Final approval for the purchase of a 20 per cent stake in Beijing
Securities by UBS, the Swiss bank, has been delayed for several months,
despite being seen as a model for foreign investment in the sector.
UBS and the Beijing government, which owns the brokerage, remain at odds
over the detailed provisions the Swiss firm is demanding to ensure that
it gains control of the firm, according to people familiar with the
transaction.
A decision over a closely-watched bidding war between two foreign banks,
Citigroup and France's Soci��t�� G��n��rale, for control of the
debt-laden Guangdong Development Bank has also been put off.
Citigroup had been considered the front runner in the contest, but its
ambitious bid, to take about a 40 per cent stake as part of a consortium
buying 85 per cent of GDB, stretches China's rules capping foreign
investors in banks at 25 per cent.
In the case of both Beijing Securities and GDB, the foreign investors are
considered essential to turning around the companies.
But since the UBS and Citigroup bids were formulated last year, the issue
of foreign investment in China's finance sector has become highly
politicised, amid allegations that foreigners are buying state assets on
the cheap.
While the UBS deal is likely to be approved, the Citigroup deal is much
more difficult.
Mr Wen, China's premier, said this week that the state should retain a
controlling interest in commercial banks, a pronouncement that does not
necessarily apply to GDB, as it is classified as a "shareholder" bank.
However, his forceful recitation of policy at his annual news conference
reflects the sensitivity of the government about criticism of the sale of
financial assets and the difficulty of making an exception for Citigroup.
Mr Wen would bear direct responsibility for any political decision to
break foreign investment caps to approve the purchase by the US company,
because the Politburo member responsible for finance, Huang Ju, is
absent, ill.
Working in Citigroup's favour is the April trip to Washington by Hu
Jintao, China's president, who will be looking to announce bi-lateral
trade and investment deals while he is in the US.
Mr Hu could present approval of Citigroup's takeover of GDB to the Bush
administration as a substantial concession in the opening of China's
services sector.
A greenlight for Citigroup might also help puncture continued pressure
from Washington for a substantial revaluation of China's currency, a
demand that Beijing has made clear it will not cede to.
China has said it would consider widening the narrow band in which its
currency, the renminbi, now trades, but Mr Wen has ruled out any further
one-off revaluations.
Despite the criticism of banking reform, China has continued to press
ahead with initial public offerings overseas for Bank of China and the
Industrial and Commercial Bank of China, two of the country's three
biggest lenders.
The BoC is due to list in the first half of this year while ICBC is
scheduled to go in September, both of them in Hong Kong.
Mr Wen said the listing of the banks with foreign strategic investors was
not the objective of the reform, but merely a way to improve their
management and corporate governance.
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