U.S. banks that piled into China at the start of this decade asserted they were in it for the long haul.

But with China struggling through a recession and the nation keeping tight restrictions on foreign banks, the long haul is looking longer than ever.

Last Thursday, U.S. and Chinese officials got together in Auckland, New Zealand, in the latest attempt to iron out differences over the terms for China's entry into the World Trade Organization.

U.S. trade representative Charlene Barshefsky used the usual terms "positive" and "constructive" to describe the talks, but she said little else.

Though China-watchers believe an arrangement eventually will be reached, U.S. and foreign banks are wondering when they will be able to do more than just handle foreign currency business with non-Chinese companies and limited local currency business with foreign companies from special branches in Shanghai and Shenzhen.

In April, responding to demands from the United States for major concessions as a condition to China entering the WTO, Chinese premier Zhu Rongji proposed a three-step liberalization.

In a first stage, foreign banks would be allowed to open branches across China instead of in only a handful of cities but still would be limited to doing business with foreign companies. In a second stage, within two to three years, foreign banks would be allowed to handle business with Chinese companies in local currency. In a third stage, after five years, they could engage in local currency transactions with Chinese consumers.

An ill-timed decision by U.S. officials to disclose the Chinese proposals before Mr. Rongji had time to discuss them back home triggered a major backlash on his return to China. Talks became even more difficult after NATO planes bombed the Chinese embassy in Belgrade over the summer.

"Basically, the Chinese position is that they gave away too much, and the U.S. position is that they need to make more concessions," said Charles Tan, a Chinese bank analyst with Moody's Investors Services.

Although the diplomatic climate has since improved, a deepening recession is making China more wary of giving foreign banks greater leeway. It is also making U.S. banks operating in China -- Chase Manhattan Corp., Citigroup, J.P. Morgan & Co., and Bank of America Corp. -- leery about increasing their exposure to that country. Those fears are spreading to nonbank investors. "Investors are saying: 'We've had devaluations in Mexico, Russia and Brazil, so China's probably next,' " said Martin Anidjar, sovereign debt strategist for Asia at J.P. Morgan "So why bother to invest now, when in a few months you may be able to buy what you want for 10% or 15% less?"

A decline in lending reflects the drop in business activity and investments in China. U.S. bank cross-border lending fell to barely $2.6 billion at the end of March, from a high of $4 billion at the end of 1997.

Many say the situation in China must get worse before it can get better. But they add that without foreign competition, the recession will drag on longer than it should because China will never come to grips with its biggest problem -- massive subsidies flowing from government-owned banks to loss-making state enterprises.

"China's banking system has added to its mess by insulating itself from foreign competition," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. "Basically, they need foreign competition to bring in techniques, such as credit and risk management, to solve their own problems."

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