http://news.ft.com/cms/s/b0d074b2-b41c-11da-bd61-0000779e2340.html

A backlash against foreign investment in China's finance sector is holding up approval for a number of high-profile deals pairing overseas companies with troubled local banks and brokerages.

Final approval for the purchase of a 20 per cent stake in Beijing Securities by UBS, the Swiss bank, has been delayed for several months, despite being seen as a model for foreign investment in the sector.

UBS and the Beijing government, which owns the brokerage, remain at odds over the detailed provisions the Swiss firm is demanding to ensure that it gains control of the firm, according to people familiar with the transaction.

A decision over a closely-watched bidding war between two foreign banks, Citigroup and France's Soci¨¦t¨¦ G¨¦n¨¦rale, for control of the debt-laden Guangdong Development Bank has also been put off.

Citigroup had been considered the front runner in the contest, but its ambitious bid, to take about a 40 per cent stake as part of a consortium buying 85 per cent of GDB, stretches China's rules capping foreign investors in banks at 25 per cent.

In the case of both Beijing Securities and GDB, the foreign investors are considered essential to turning around the companies.

But since the UBS and Citigroup bids were formulated last year, the issue of foreign investment in China's finance sector has become highly politicised, amid allegations that foreigners are buying state assets on the cheap.

While the UBS deal is likely to be approved, the Citigroup deal is much more difficult.

Mr Wen, China's premier, said this week that the state should retain a controlling interest in commercial banks, a pronouncement that does not necessarily apply to GDB, as it is classified as a "shareholder" bank.

However, his forceful recitation of policy at his annual news conference reflects the sensitivity of the government about criticism of the sale of financial assets and the difficulty of making an exception for Citigroup.

Mr Wen would bear direct responsibility for any political decision to break foreign investment caps to approve the purchase by the US company, because the Politburo member responsible for finance, Huang Ju, is absent, ill.

Working in Citigroup's favour is the April trip to Washington by Hu Jintao, China's president, who will be looking to announce bi-lateral trade and investment deals while he is in the US.

Mr Hu could present approval of Citigroup's takeover of GDB to the Bush administration as a substantial concession in the opening of China's services sector.

A greenlight for Citigroup might also help puncture continued pressure from Washington for a substantial revaluation of China's currency, a demand that Beijing has made clear it will not cede to.

China has said it would consider widening the narrow band in which its currency, the renminbi, now trades, but Mr Wen has ruled out any further one-off revaluations.

Despite the criticism of banking reform, China has continued to press ahead with initial public offerings overseas for Bank of China and the Industrial and Commercial Bank of China, two of the country's three biggest lenders.

The BoC is due to list in the first half of this year while ICBC is scheduled to go in September, both of them in Hong Kong.

Mr Wen said the listing of the banks with foreign strategic investors was not the objective of the reform, but merely a way to improve their management and corporate governance.