Before leaving, Stanley praises China's achievements in following up the promises made when it entered the WTO at the end of 2001: “China is meeting its commitments. The whole WTO process is a very far-reaching agreement, covering every industry and including many details. There are bound to be some complaints, but I think China's overall performance is pretty good.” Stanley adds: “This is the fastest growing economy in the world. It is the driver of much of the economic growth in the rest of the world.”

Citigroup and China

As the world's largest financial services conglomerate with 200 million accounts spread over more than 100 countries and assets of US$5 trillion, Citigroup's focus on China does not come as much of a surprise. Along with Standard Chartered and HSBC, Citigroup belongs to a small group of foreign banks that is betting heavily on a future in the Chinese domestic market. Citigroup has five branches, one sub-branch and two representative offices in China. In addition, Citigroup offers custodial services for Qualified Foreign Institutional Investors (QFII).

While Citigroup has been in China since 1902, there was a lapse in its activities since the Communist take-over in 1949. However, in the 1990s Citigroup resumed activities in China.

Becoming an established foreign bank in China is an uphill battle as domestic competitors hold an overwhelming market share. In the past year, the collective market share of foreign banks dropped from 2 to 1.4%, says Stanley, “because of the increase in lending from the domestic banks”. In the Euromoney China CFO Survey, domestic banks still outperform Citigroup for specific tasks like cash management and foreign exchange services. This is due to their huge network, says Stanley: “We try to be complementary to those services of domestic banks. We offer our technology, but sometimes our clients prefer to do business directly with those banks.”

Stanley realizes that many of the products Citigroup brings into the Chinese market need a long-term perspective . While Stanley does not want to elaborate on the position of Citigroup in the future, he expects that foreign banks will hold no more than 15% of the Chinese market in ten to fifteen years: “That may sound rather limiting, but it will be 15% of a much larger market. There will be much more wealth, many more products we can sell, and we talk about a much larger market than we have now. It is very attractive, not only to work with governments and corporations, but also the consumer market. Citigroup is serving a broad range of clients and will certainly go beyond the top-tier market.”

Savvy investors

“It is not the big name that attracts us,” remarks Stanley on Citigroup's investments in China. “We look at their core business, their market and we have to be comfortable with the quality of their management.” Those criteria are more important than the question of whether a company is private or state-owned, says Stanley: “More state-owned companies are behaving like private companies anyway.”

Citigroup provided its domestic competitors with a wake-up call in 2002 when it convinced a local joint venture of Ericsson, the Swedish mobile phone company, to swap its accounts at the Bank of Communications for Citigroup's services. Unlike the Bank of Communications, Citigroup offers services for the company's account receivables, and Ericsson made the switch. The change, dubbed the “Ericsson-incident”, forced the complacent domestic banks to sit up and take notice. Although foreign banks may still only hold a small percentage of the lending market in China, they do have a profound influence on the banking services provided in China.

Citigroup announced recently an investment into Shanghai-based Pudong Development Bank, the ninth largest bank in China, as a starting point for its new credit card business in China. “We hope to increase that stake in due course,” adds Stanley. In other Asian countries it took decades before credit cards and insurance spread its roots, and Stanley does not expect that it will be easy going in China. Yet, in June Citigroup announced a 50/50 life insurance joint venture with Shanghai Alliance Investment.

An awarded departure

In the Euromoney China CFO survey, Citigroup not only takes the first place but does so with a firm margin compared to its fiercest foreign competitor in China, HSBC. Compared to Citigroup, HSBC invested more – and earlier. As such, its branches outnumber Citigroup's, and it has been more active in taking shares in domestic players, including apparently a 20% stake in the Bank of Communications, the fifth largest commercial bank.