Sunday, October 12, 2008

Beijing monitors foreign financial groups

Beijing has stepped up its monitoring of international financial institutions in the country amid fears that the failure of a large foreign group could see the global credit crisis spill over into a largely insulated China.

China’s securities regulator has ordered all joint venture fund management groups to report on the health and financial position of their foreign partners and explain how the global turmoil could affect operations in China.

“This is a very normal action to take under the current extraordinary circumstances,” said one regulatory official who asked not to be named because he was not authorised to speak publicly. “It is the government’s responsibility to do this in order to protect the interests of Chinese investors and the stability of the domestic market.”

Meanwhile, foreign banks operating in China, especially American groups, are finding it increasingly difficult to borrow from their Chinese counterparts in the domestic interbank market.

China’s banking regulator has issued a statement strongly denying media reports that it had ordered Chinese banks not to lend to international competitors.

The central bank called in representatives of the country’s four biggest banks last weekend and ordered them to ensure there was adequate liquidity in the domestic interbank market, according to bankers familiar with the meeting.

But foreign banks that have incorporated in China, and are unable to access their parent groups’ treasuries in Hong Kong or elsewhere, say credit has become very tight, except for a couple of the strongest lenders.

“We are still able to square our positions at the end of each day but things have got very tight since the second week of September and the situation has worsened over the last couple of weeks,” said one senior foreign banker. “We’re not really able to do any new business and our funding is mostly overnight rather than long-term.”

Just over half of China’s 60 fund management companies are joint ventures with foreign investors and in 15 of those the foreign partner holds 49 per cent.

Those partners include AIG, recently bailed out by the US government, and Fortis, partially nationalised and bought by French rival BNP Paribas.

The Chinese leadership is “scared to death” about the consequences if the domestic credit markets were to seize up as they have in other places, according to people familiar with the debate.

The Financial Times,
By Jamil Anderlini in Beijing - October 9 2008