Foreign investors slow to gain access in China
By Michael Forsythe
Bloomberg News Service
BEIJING — Citigroup Inc. Chairman Sanford Weill said in March that he'd like to see 300 Citibank branches in China someday. At the rate China has let his company expand, Weill's wish won't be realized until the year 2302.
A year after joining the World Trade Organization, China is balking at boosting foreign investors' access to its 1.3 billion consumers. While local sales have risen at Citigroup, General Motors Corp. and other overseas companies, regulations aimed at protecting domestic companies are curbing their next phase of expansion: selling a wider range of goods and services in more Chinese cities to compete with local rivals.
"There are a lot of expectations that have been there for over 20 years, and things really have not moved," said Ernst Behrens, chairman of the European Union Chamber of Commerce in Beijing and head of Siemens AG's China business, referring to the opening of the banking, insurance and telecommunications markets. "It's a very serious concern."
The delays mean China is reaping more benefits from WTO membership than its trading partners are. Asia's second-largest economy grew 7.9 percent in the first three quarters, the fastest of any large world economy.
The U.S. trade deficit with China, bigger than with any other country, widened to $73.6 billion up to September, from $61.2 billion a year earlier, as China's exports to the United States rose 19 percent. That helped push the U.S. trade deficit to a record in August. The 15 countries of the European Union had a 20 billion euro ($20 billion) deficit with China through August.
Of the total 11.6 percent increase in imports to the United States in the 12 months ended in September, shipments from China accounted for about 23 percent.
A growing deficit forces an economy to rely more on foreign investment to plug the gap, risking a drop in currency and equity values if global money managers withdraw.
Overseas investors aren't fully sharing in China's growth. Citigroup's Citibank has just four China branches and HSBC Holdings Plc, the country's biggest foreign bank, has nine — compared with 28,000 for Industrial & Commercial Bank of China, the largest domestic lender. To install an ATM machine in a shopping mall, a foreign lender needs central bank approval.
Regulators limited international lenders' access to the Chinese currency last month, making it harder for them to add local customers.
"We would like to see them move a bit more quickly on raising domestic loan limits," said Jeffrey Shafer, vice chairman of Citigroup's Salomon Smith Barney Inc.
General Motors and other foreign carmakers also face obstacles to expansion: They're barred from offering auto financing, which would help them attract more buyers in a country where only one in 100 people owns a car.
15 Years of haggling
"It is clear that some areas of implementation have gone more smoothly than others, and it's equally clear that in some areas implementation is difficult," said Charlene Barshefsky, the former U.S. Trade Representative who led U.S.-China negotiations on the country's WTO entry.
Granted, China — which marks its one-year WTO anniversary on Dec. 11 — has given overseas businesses greater access to its markets since it joined the global trade body.
Under the terms of its admission — agreed after 15 years of haggling over issues from farm subsidies to insurance — China has cut car tariffs by as much as 18 percent, increased imports and let foreign banks offer accounts to Chinese citizens for the first time.
"By and large, their government is making a decent, good- faith effort," said Bill Reinsch, a former U.S. Commerce Department undersecretary who's now president of the National Foreign Trade Council, an exporters' group representing Microsoft Corp., Motorola Inc. and hundreds of other companies.
Cheap production base
China's government welcomes foreign manufacturers that use the country as a cheap production base, boosting exports and creating millions of jobs. A shift of assembly lines to China from Europe, North America and other parts of Asia that began more than a decade ago has accelerated in the past year.
Foreign direct investment in China has surged 20 percent this year and exports have climbed 21 percent, even as the global economy stalled. Overseas companies accounted for 52 percent of China's exports in the first 10 months of 2002, according to Long Yongtu, China's vice minister of foreign affairs.
Sanyo Electric Co., the largest maker of digital cameras, said earlier this year it's shifting some production lines to China from Japan to cut payroll costs. Motorola plans to increase cell-phone production at its two China factories by a third to 40 million units this year. It will export about half of those phones.
Waiting since May
While foreign companies are gaining ground in a consumer market that's growing as incomes rise, they've faced obstacles in some areas where they threaten to grab market share from local companies.
Take General Motors. Local sales of the Buick Sail, Century and GL8 cars and minivans it makes in Shanghai are set to almost double this year to 110,000 units as higher incomes make cars more affordable.
Yet the world's largest automaker hasn't won permission to sell auto financing, even though China said it would open up that market immediately after joining the WTO.
"We've been waiting ever since May," said Phil Murtaugh, head of General Motors' operations in China.
Banks also find the local market is opening only gradually.
Central bank limitations
The number of local accounts at HSBC's Beijing branch has almost tripled since April, when China allowed citizens to park some of their $148 billion in foreign-currency savings with overseas lenders. Yet last month, the central bank limited the amount of local currency banks can borrow from each other to 40 percent of their yuan-denominated liabilities.
That may cap foreign banks' expansion: Because they're barred from accepting deposits in yuan, curbing their access to local currency will leave them with less cash to lend.
"We and a number of other foreign banks have raised it as an issue," HSBC Executive Director David Eldon said in an interview at a Beijing conference last week. HSBC's expansion in consumer banking in China "has generally been pretty slow."
Under WTO rules, China must let foreign banks start providing local-currency services to local businesses by the end of 2003 and extend them to consumers by the end of 2006. Now, overseas lenders can only offer foreign-currency accounts to Chinese individuals and companies and can do yuan, or renminbi, business with foreign clients in nine cities.
'Step by step'
"We are liberalizing our renminbi business gradually, step by step," China's Long said in an interview in Washington. "China always does things with a gradual approach."
