The China Venture

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anks were established in China. China’s commercial and financial capital Shanghai alone hosts 38 foreign banks and 119 representative offices, in 1997 the number of branches even raised to 70. This figure is increasing rapidly. 37 However, the international banks can only do little more than arrange capital injection certification and continue lucrative trade finance because of numerous restrictions for foreign banks in China. In addition, opening an account with a foreign bank adds extra steps and expenses. Differences in banking services shows some differences between Chinese and international banks in financing investment projects in China. Until the end of 1996, no foreign bank could offer many day-to-day services to foreign companies or individuals in local currency. In January 1997, it was announced that nine foreign banks had been granted licences to undertake business in RMB. Among these group were the Citibank, Hong Kong & Shanghai Banking Corporation, Bank of Tokyo-Mitsubishi, Industrial Bank of Japan, Dai-Ichi Kangyo Bank, Sanwa Bank, Standard Chartered Bank and International Bank of Paris. Formal approval to actually transact business in RMB would be forthcoming when the conditions of the licence had been fulfilled to the satisfaction of the PBOC. According to PBOCs regulations, the foreign bank must have achieved profit in the last three years and engaged in medium- to long-term capital financing in China. Such a licence is only granted to those banks located in the Pudong New Area - the new financial district of Shanghai. (They were also given the choice to maintain a sub-branch in the older Puxi district of Shanghai, but RMB business can only be handled in Pudong.) Their total RMB loans are not allowed to exceed 35% of their foreign currency liabilities. Compared with the total loans outstanding in China, this is only a very small amount. The banks each have to inject foreign currency capital (equivalent to no less than RMB 30 million) and convert it into RMB as working capital to run their RMB business. 38 36 Wegner, 1998, pp. 23. 37 Asian Wall Street Journal, April 1, 1996, p. 4; Jin Rong Shi Bao, March 5, 1996, p. 2. 38 Klug, 1997, p. 7 and Wegner, 1998, p. 24. 28
Chinese Banks Foreign Banks Financing services RMB financing services financing in foreign currency export financing trust loans required securities Mortgage capital injection certificate only 9 of them allowed allowed allowed seldom only as an additional security yes terms short term renewable max. 6-7 years, except longer term through project and export financing other banking services deposit accounts, foreign exchange, documentary operations for Chinese partners TABLE 2-2: Differences in banking services 39 for foreign partners consulting foreign enterprises in entering the Chinese market These foreign banks may only operate RMB accounts for FIEs that have legal registration in Shanghai. The foreign banks are still able to lend foreign currency funds to Chinese companies with transactional approval from the regulatory authorities, but under these new regulations are still not allowed to handle RMB-denominated business for local Chinese enterprises unless they have listed on an offshore stock exchange. Deposits from local citizens are also not permitted. The advantage for FIEs based in Shanghai, is that they can use one of these nine foreign banks for all their local and foreign currency transactions. they can expect higher standards of service from these banks and a better understanding of their international businesses. Many international banks from the German speaking region have set up their branches or representative offices in Shanghai such as Swiss Bank Corporation (SBC), Union Bank of Switzerland - in 1998, both banks merged to the new UBS AG - , Credit Suisse, Commerzbank, Dresdner Bank, Bayerische Vereinsbank or Westdeutsche Landesbank (WestLB). Most of them applied for a RMB-licence but are still waiting. The PBOC has yet to announce any specific plans to expand RMB business to other banks or other areas of the PRC. Due to the globalisation and further deregulation of China’s financial market, the financial landscape could dramatically change, but looking at the past, it becomes obvious that China could also suddenly stop every foreign influence and investment. However, it is expected tha t, as in the past, opening up the market will be on a step-by-step basis. Non-bank financial institutions In China, the non-state financial sector does not antedate the state banking sector; rather, it developed in response to controls over, and deficiencies in, that sector. Indeed, state banks are 39 Klug, 1997, p. 2-6. 29
Page 1 and 2: The China Venture: Business Environ
Page 3 and 4: Table of Contents List of Figures .
Page 5 and 6: 3.2.3.2 Special Funds for Setting U
Page 7 and 8: 3.4.1.1 National Culture ..........
Page 9 and 10: List of Tables TABLE 2-1: THE AREAS
Page 11 and 12: GBP Pounds Sterling GDB Guangdong D
Page 13 and 14: 1. Introduction: The China Venture
Page 15 and 16: After a short discussion with the p
Page 17 and 18: co-operate with other firms, especi
Page 19 and 20: The Chinese operating legal system
Page 21 and 22: First of all, Britain’s predomina
Page 23 and 24: democratic centralism, all governme
Page 25 and 26: The courts are the state organs exe
Page 27 and 28: more than three hundred intermedia
Page 29 and 30: 2.2.8 Company Law China’s first n
Page 31 and 32: Things seem have to become a lot cl
Page 33 and 34: 2.3.1.1 Financial sector developmen
Page 35 and 36: securities, trading, initial public
Page 37 and 38: underdeveloped compared with market
Page 39: established in January 1996 by 59 p
Page 43 and 44: system formulation has been put on
Page 45 and 46: The separation of production and co
Page 47 and 48: swap centres (see also above). From
Page 49 and 50: investors with little experience an
Page 51 and 52: them, while a branch with a shortag
Page 53 and 54: Loans, public offerings of shares,
Page 55 and 56: is often to acquire foreign capital
Page 57 and 58: 2.3.3.2 Debt financing As getting t
Page 59 and 60: the approval of special authorities
Page 61 and 62: control compared to national enterp
Page 63 and 64: usiness in China and related issues
Page 65 and 66: 3. Pre-Entry Strategic Consideratio
Page 67 and 68: While the testing for the general r
Page 69 and 70: of relevant contacts to suppliers a
Page 71 and 72: partner companies with free servici
Page 73 and 74: strengths which his own company lac
Page 75 and 76: Central Committee of the Communist
Page 77 and 78: environment for foreign investment
Page 79 and 80: legal and regulatory environment of
Page 81 and 82: 3.2.4.3 Legal Framework for Foreign
Page 83 and 84: • China’s entry into membership
Page 85 and 86: • stipulates that advanced techno
Page 87 and 88: Government approval. Foreign invest
Page 89 and 90: Co-operative Joint Venture Status P
Page 91 and 92:
Reflecting on these points the foll
Page 93 and 94:
Success Factors concerning Products
Page 95 and 96:
Success Factors concerning Company
Page 97 and 98:
high-technology are eligible for th
Page 99 and 100:
Available Distribution Channels A m
Page 101 and 102:
Available Distribution Channels Mar
Page 103 and 104:
Page 105 and 106:
Illustrative Case Studies The follo
Page 107 and 108:
Page 109 and 110:
Which Aspects should SME's Focus on
Page 111 and 112:
Strategy No. 1: Have Cash A comfort
Page 113 and 114:
expenses have a detrimental effect
Page 115 and 116:
As a conclusion, network oriented m
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3.2.13 Case Study: Swisstec, Lyss 3
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factor which makes the foreign firm
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developed within the SME, its impac
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3.3.1.3 The Role of Technology Mana
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Indirect export and direct export a
Page 127 and 128:
maintenance or the use of establish
Page 129 and 130:
Government Central Exploiting Sales
Page 131 and 132:
in the most advanced provinces and
Page 133 and 134:
network through which the products
Page 135 and 136:
Siemens or Motorola, they may have
Page 137 and 138:
Chinese partners. He also began to
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orders. However, a country may also
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Germany/Switzerland China democrati
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3.4.2.4 Conversation at the first m
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only after a certain time and even
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3.4.3 Experiences of European Compa
Page 149 and 150:
ones who atte nded a course. They s
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Another Chinese tactic is, as menti
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4. Post-Entry Strategic Considerati
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and the other one in China. The com
Page 157 and 158:
experience in operating production
Page 159 and 160:
In these two cases, the companies m
Page 161 and 162:
5. References Aharoni, Y. (1966): T
Page 163 and 164:
Dony, A. G. (1998): Market Entry St
Page 165 and 166:
Islam, I. / Chowdhury, A. (1997): A
Page 167 and 168:
Madura, J. (1993): International Fi
Page 169 and 170:
Semkow, B. W. (ed.) (1995): China F
Page 171 and 172:
6. Appendix 6.1 Fact Sheet People
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