DiligenceChina

China Economic Review writes that “China’s foreign-bank rules are set for change“. The changes, while inconvenient and a bit pricey, are not really all that onerous. Actually, they bring the rules for foreign banks closer in line with the regulations for local banks.

BUT there is an underlying pattern here that newcomers to China should take careful note of.

The rule change comes late in the game — since the WTO requirements for opening the banking sector are supposed to go into effect in 3Q06. Obnoxious, but not particularly nefarious. However, the rule changes are not yet finalized and the regulatory approval process has been rendered a bit less transparent.

Big western banks are considerably more conservative with their own money than they are with yours or mine, so this is likely to delay their plans and slow down their development in the China market.

And thus we non-finance people get a great opportunity to profit from bankers’ misery (for a change). This is a textbook example of how the regulatory regime in China functions on different levels. Yes, they are complying with the WTO regs that they signed off on. And eventually the banking sector will creak open a bit more and Citibank and HSBC will be able to offer Chinese millionaires gold-cards and private banking services. ( A bold step forward for defenders of freedom and liberty everywhere, you’ll agree.) But a “yes” in China feels suspiciously like a “kinda - maybe - probably” anywhere else.

DiligenceChina’s take-away on this: Control your burn rates and always have a Plan B ready. Citibank can push back their plans by 6 months or so and invest an extra US$125 million & change without feeling too much of a pinch in the bottom line.

Can you?