China's market for financial data worth more than $100-million

GEOFFREY YORK AND GRANT ROBERTSON

From Tuesday's Globe and Mail

March 3, 2008 at 9:20 PM EST

Companies like Bloomberg LP, Thomson Corp. and Reuters Group PLC have for years been salivating over China, where demand for financial information and stock market data is surging amid a rising and increasingly wealthy middle class.

But the industry now finds itself squaring off against the Chinese government in a potentially bitter dispute over the state's influence over foreign companies.

The European Union and the United States filed a complaint with the World Trade Organization (WTO) yesterday, concerned that China is trying to freeze out foreign competitors in an effort to build a state monopoly in the $100-million financial information sector.

The complaint, made on behalf of the world's biggest financial information companies that sell their data to banks and brokerages, alleges China is breaking international trade laws by forcing foreign companies to sell their services through an agency appointed by state-owned Xinhua. Meanwhile, Xinhua is their biggest competitor in the Chinese market.

"Our members are complaining that they can't reach their customers in China because they're required by regulations to go through Xinhua," said Ken Wasch, president of the Software and Information Industry Association. The Washington, D.C., group represents the financial information industry, including, Bloomberg, Dow Jones, and a combined Thomson-Reuters, following the Thomson takeover from last year.

"We want to have direct access to our customers, we don't want to have to go through our competitor in order to reach them," Mr. Wasch said.

The Chinese government has been trying for 12 years to gain control of the sector, twice introducing rules that would force out foreign suppliers.

The first attempt, in 1996, was beaten back by intense U.S. lobbying. But the second effort, launched in 2006, has been more determined. Repeated backroom complaints by U.S. and European leaders have gotten nowhere, so the decision was made yesterday to file a formal WTO challenge.

China's rules require that all financial data be provided by distributors that are approved by Xinhua.

Foreign financial data companies are banned from directly soliciting clients or directly selling to banks and brokerages in China. Xinhua is also authorized to censor any information that undermines "social stability" or "national security" in China.

"China's restrictive treatment of outside suppliers of financial information services places U.S. and other foreign suppliers at a serious competitive disadvantage," U.S. Trade Representative Susan Schwab said in a statement yesterday.

"We have raised this matter with China repeatedly, yet the problem has not been resolved. We hope the filing of our request for formal WTO consultations will lead to a swift resolution of this matter."

Banks and investment firms in China need real-time access to financial information "from diverse sources — foreign and domestic — in order to make effective business decisions," Ms. Schwab said. "It is not in China's interest to restrict access to the high-quality, comprehensive financial information provided by foreign service suppliers."

The EU made a similar complaint to the WTO yesterday. "Competitive and open financial services information markets are the lifeblood of a strong financial sector, but China's rules have tipped the balance against foreign companies," EU Trade Commissioner Peter Mandelson said in a statement.

China joined the WTO in 2001. Under the organization's rules, the U.S. and the EU will hold consultations with China for 60 days, and they can seek the formation of a panel if the consultations fail.

The Chinese government has long been criticized for controlling the media in China — while also forcing Internet giants such as Yahoo and Google to bow to a range of demands.

However, this latest dispute is largely a fight for money. The Chinese market for financial information was estimated to be worth more than $100-million in 2006, and has continued to grow since then.

James McGregor, a former chief executive officer of Dow Jones's businesses in China, said Xinhua "began to lust" over the obvious profits in the financial news and data business in the 1990s, which led to its power grab in 1996. But even China's banks did not want Xinhua to dominate the information supply, Mr. McGregor recalled in a book published in 2005.

"China's banks and commodity trading firms didn't want Xinhua in the middle of their information flow," he wrote in the book, One Billion Customers. "They figured that Xinhua's censors would slow news delivery and kill controversial stories that China found distasteful but nonetheless moved financial markets where Chinese traders had positions to defend."