Partners of potential alliances will require resolve in accepting the pros and cons of a financial agreement
The possible collapse of Newbridge Capital's investment in Shenzhen Development Bank does not spell the end of bank deals in China. Foreign banks and institutional investors have an intense interest in China's growing middle class, who are beginning to buy cars, sign mortgages and use credit cards.
Players including Citibank, HSBC, Bank of Tokyo Mitsubishi and Bank of East Asia are expected to be aggressive as they seek to buy stakes from joint ventures with China's small, fast-growing banks.
Foreign companies seek China's smaller banks for two reasons. First, if these banks can clean up their bad loans and improve management, they offer significant potential to improve profits.
Second, some of them own retail networks that can sell Western-style products such as credit cards to Chinese middle-class consumers. Laws now severely restrict foreign banks from opening branches and selling products on their own.
As the Newbridge-Shenzhen situation shows, foreign companies have to jump through hoops to strike the right deal. For most banks, transparency is low and prices are high.
