China%20Door%20300.jpgMorgan Stanley has acquired China's Nan Tung Bank
in a surprise move that shows China's door is still open to FDI despite
recent concerns that Beijing was looking to cool foreign interest in
industries such as financial services.

Nan Tung Bank has just a
single branch in Zhuhai, serving the Pearl River Delta region of
Guangdong province, and it is currently only allowed to deal in foreign
currencies. However, Morgan Stanley can now apply for a licence to
offer yuan-denominated products instead of having to wait the customary
five years.

The deal is thus a minor coup for Morgan Stanley,
which has snapped up a commercial bank in China ahead of its Wall
Street rivals — and ahead of the 2007 deadline set for liberalisation
of China's financial services.

The western press has been full
of stories suggesting that with the new year, the climate for foreign
investment could turn a lot cooler. Beijing feels that three years of
market-opening measures — imposed on it as a condition of China's
accession to the WTO — have gone far enough.

There are already
signs that China is taking a more critical stance of foreign investment
in certain sectors. Carlyle, a US private equity firm, US construction
equipment maker Caterpillar and Japanese electronics conglomerate
Toshiba have all had major acquisitions placed under the central government microscope, according to the China Economic Quarterly ($).

In the finance sector, China has halted sales of domestic brokerages
to international firms, thwarting plans by companies including
Citigroup and Merrill Lynch to increase trading in the world's
fastest-growing share market, reports The Age.

The ban
leaves Goldman Sachs Group and UBS as the only firms with their own
brokerage ventures in China. The move is designed to buy breathing room
and encourage consolidation among China's domestic players, who would
otherwise be unable to withstand the advances of deep-pocketed foreign
firms.

In addition, the sharp rise in China stocks has reduced the sense of urgency to introduce foreign competition into the sector, argues the Financial Times ($).

Nevertheless,
market professionals believe foreign investment will be essential if
China's exchanges are to compete internationally.

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