IT’S ONE SLOW BOAT FOR YANKS IN CHINA: CLINTON TALKS UNABLE TO SPEED UP APPROVAL FOR FINANCIAL FIRMS

The political success of President Clinton’s visit to China last week doesn’t mean much to John J. Degnan, president of the Chubb Corp.

Warren, N.J.-based Chubb – which had hoped the Clinton visit would get action on its six-year-old application to sell insurance – remains empty-handed, even though previous high-level visits have prompted the Chinese to dole out goodies to U.S. corporations.

The Chinese have parceled out licenses to foreign financial services companies as if they were ancient secrets, seeking to shield newly private home-grown enterprises from competition. And they may become even more protectionist.

“The turmoil going on in the rest of Asia is going to make them more cautious about opening up to foreigners,” says Julie Wang, co-manager of the Bankers Trust Investment International Equity Fund.

“They want to make sure their banking and insurance business is strong enough before they let everyone come in and take all the profits,” Ms. Wang says, adding that many Chinese banks are saddled with bad loans to state-owned enterprises.

“It’s a high entry cost but China’s huge demographic base is justification alone,” says Mr. Degnan of Chubb. ” ‘Eventually,’ ” he warns, “signals that companies are unwelcome or that entry requirements are just too high will have an adverse impact” on efforts by U.S. firms to set up shop.

Competitor Aetna Inc. recently got a license to sell life insurance through a joint venture in China.

In addition to three so-called representative offices, serving as a base to negotiate for the company’s license, Chubb also runs a school of insurance at a Shanghai university. The school is the type of good-faith gesture almost required of companies wanting to enter the market.

Of the handful of American financial services companies doing business in China, American International Group Inc. is the most entrenched. Booted out in 1947 when the Communists came to power, in late 1992 it won permission to sell life and non-life insurance in Shanghai – the first foreign insurance license granted in 45 years. Three years later its license was expanded to include Greater Guangzhou, the economic hub of South China.

For AIG, whose thousands of agents in China sell door-to-door, the venture is a real homecoming. The New York company was founded in Shanghai by American Cornelius Vander Starr, who, according to company legend, arrived in 1919 at age 27 with 330 Japanese yen in his pocket. When he died nearly 50 years later, he was the head of a vast multinational corporation with headquarters on Wall Street.

in its infancy

Merrill Lynch & Co. in 1993 became the first U.S. investment bank to open a representative office and since has managed more than $8 billion in debt and equity issues in China. In 1994, it organized the first global bond issue for Beijing.

Merrill isn’t ruling out mutual funds for Chinese investors, but it will have to get in line. Mutual fund shops ranging from Scudder Kemper Investments Inc. to Van Eck Global, both based in New York, are already eying China, some more aggressively than others. The attraction: 1.2 billion citizens who have a staggering 25% savings rate among families.

Much of that is in savings accounts, and money managers anticipate a huge demand as the government dismantles social programs, like government housing, citizens have long taken for granted.

Still, it will be a long time before most Chinese know about mutual funds.

“The mutual fund industry is in its infancy and the regulatory framework is just being established and fleshed out as we speak,” says Gregory Neumann, a Scudder Kemper Investments managing director formerly based in Hong Kong. Scudder is exploring a possible joint venture in China.

Foreign fund shops are in the same boat as Chubb.

New York-based Van Eck, for instance, filed an application in 1996 for a license to offer mutual funds through its partner, Shenyin & Wanguo, the country’s largest broker-dealer. It is still awaiting a response.

“It is a very opaque process,” says Jan van Eck, executive vice president and emerging-market strategist at New York-based Van Eck Global. “There are no published regulations and to the extent that licenses are handed out, there are no particular criteria.”

“It can be a very frustrating process. It is not for those who don’t have patience,” he adds.

The company’s plan calls for running domestic stock and bond mutual funds for Chinese citizens. Columbus, Ohio-based Nationwide Insurance Enterprise joined the venture late last year and will invest with Van Eck to develop “fund management capabilities and systems” in China.

In the United States, Van Eck manages several hundred million in mutual fund assets for Nationwide’s variable annuities.

“As the economy has become more sophisticated, different industries have allowed foreign companies to own 100% of Chinese subsidiaries,” says Mr. Van Eck.

“That has generally not been true in the financial services world where China has restricted access and handed out licenses on a case-by-case basis.”