THURSDAY, DECEMBER 12, 2002
Citibank eyes China share market
REUTERS
HONG KONG: Citibank is keen to become a player in China's domestic share sector, but the top US bank has plenty of questions about the mechanics of participating in the $500-billion market.
Banks are eager to provide future custodial services - administration and safekeeping of assets - for foreign investors in the Chinese domestic market.
But overseas funds so far have been lukewarm about the prospect of investing there, deterred by high valuations, instances of crooked corporate accounting and requirements that lock up foreign capital for at least a year.
Even Citibank, the banking arm of the world's No. 1 financial services firm Citigroup, says China's guidelines on its qualified foreign institutional investor (QFII) scheme are hard to figure out.
"We had our lawyer look at them and, gosh, this market is very different than other markets we operate in," Richard Ernesti, regional head of Citibank's Asia Pacific Global Securities Services, told a small group of reporters.
"I think no one anticipated there will be so many questions, with respect to the CSDCC (China Securities Depository and Clearing Co), the settlement agreement, the principal risk issue, the information flow," he said.
Still, Ernesti expects 10 to 15 global names to apply to buy A shares under QFII, even though a recent survey by UBS Warburg found little appetite among institutional investors for participating in a market where stocks trade at price/earnings ratios averaging an astronomical 37 times. High entry barriers
Citibank wants to know more about the exact role of custodian banks under the scheme, where the risk lies, and how custodian banks will communicate with brokers and the CSDCC, Ernesti said.
The bank was scheduled to meet with mainland authorities in Beijing on Thursday, and hopes to have a clearer understanding of the QFII rules by year-end, Ernesti said.
Trading under the scheme is expected to start on April 1.
"It clearly is a very, very important market for us," Ernesti said, referring to China.
Four other banks - HSBC (Holdings), Standard Chartered, Bank of China and the Industrial and Commercial Bank of China - have also applied for custodian bank licences under QFII.
China has set stringent standards for allowing foreign investors into its yuan-currency A-share market, which has so far been reserved exclusively for domestic investors.
Under the new regulations, each qualified foreign institutional investor can invest US$50-800 million in the A-share market. A single investor could only hold up to 10 per cent of an A-share company under the scheme. Combined QFII investors could not hold more than 20 per cent of a firm's shares.
QFII principal investments will be subject to a one-to-three year lock-up period. Profits can be realised at any time, although for most investors, the actual proceeds can only be removed from China after one year, and thereafter once every three months.
Several market watchers have said barriers to foreigners entering the market are prohibitively high.
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