International: Cracking the Opaque Chinese Market

Western attempts to open the notoriously opaque Chinese market are many; success stories are in short supply. But they can be found when Western companiesobanks includedooffer China something it wants. Among the things Chinese banks need that U.S. banks probably don't want to supply is technical consulting, says Daniel Shih, an Ernst & Young partner, based in Washington, D.C. "Banks want a revenue stream from ongoing operations, and a one-shot (technology) consultancy really doesn't bring them anywhere," he says. "Also, there's a dilemma in that they wind up preparing the ground for their competitors when the market really opens." An example: MasterCard stormed into China, while American Express and Visa sat back and waited, he says; now they are taking corporate market share. Nonetheless, U.S. banks like Citibank are trying to help Chinese banks develop their back office and systems operations, while trying to get government licensing for retail operations with Chinese companies involved in overseas trade, for instance. But, says Shih, that's generally rare; the Japanese banks are more aggressive in this area. Citibank deputy managing director Gordon Lam, based in Hong Kong, says that his bank is also working in a joint venture with the Brunei Development Agency and the China Everbright Groupoan arm of the Chinese State Counciloto invest between $130 and $170 million in joint ventures with Chinese companies in the raw materials, packaging, telecommunications, electronics, and food and beverage businesses. Of course, many U.S. banks with Hong Kong operations had the problem of how to enter the Chinese market solved for them by history when Britain's lease on the Crown Colony expired in July, since many multinational companies already used these banks for some of their Chinese business. But the problem of what to do next persists. A winning strategy: Learn Chinese banking law; adapt to doing business on their terms; and form off-shore joint ventures with other companies, offering Chinese firms one-stop shopping in which the banks finance the sale of big-ticket items in a package deal. Says Shih, "This is what the Japanese are doing and something the Chinese understand." -reinbach tfn.com