What warnings should foreign firms take on board before investing in China's financial industry?
Companies considering entering China's financial sector should heed both a note of caution and a call to action. Despite China's commitment to fundamental liberalization, making money in the highly competitive, emerging financial services market will remain difficult. The RMB is unlikely to become convertible on the capital account in the near future, and interest rate controls will affect pricing decisions for some time to come. Domestic competition will not be easily swept aside and low per capita incomes limit the revenue individual consumers can generate for financial service firms. Credit assessment also remains problematic. High entry costs must be weighed against a serious study of the actual potential market in the medium term--which is nowhere near the total population of 1.3 billion.