Reference no: EM135385

"Banking on the Chinese Internet".

Net Bank, Limited is a start-up Internet bank seeking to develop a worldwide clientele. Currently, managers at Net Bank are focusing their attention on the People's Republic of China. In 1978, the Central Committee of the Communist Party in China adopted proposals for reforming the nation's economic structure that opened China's economy to international exchange of goods, services, and financial assets. Nevertheless, China has continued to lag well behind the rest of the world in information technologies, and since the early 1980s reformers within the Chinese government have pushed for expanding the nation's telecommunications network as part of an overall effort to modernize the national economy. By 1998 China had launched a major effort to develop an Internet of its own, and it sought to link businesses and, ultimately, consumers within a centralized telecommunications network. Current estimates indicate that as many as 500 million Chinese people could have access to Web-connected computers by 2012.

Net Bank and other companies outside China have been developing Chinese-character versions of Internet websites, to make it easier for Chinese-speaking people with access to the Internet. A complication that these companies face, however, is that the Chinese government is in the process of installing a wireless automated-teller-machine system linking national provinces through a centralized Internet-based infrastructure under direct control of key administrators at the People's Bank of China, the nation's central bank. Also connected to this centralized system are foreign exchange markets in Shanghai and other Chinese cities. In addition, all smart-card systems are routed through this central network. In China, therefore, it is easier to envision successful implementation of capital controls that could suddenly disrupt NetBank's business. Should NetBank risk investing in China?