2017 marks 10 years since foreign banks were allowed incorporation in China (Zhang and John 1). In the 10 years, the banks got new customers, dealt with challenges such as declining market share, but there have been great positives such as eased licensing requirements. By 2016, China had 39 foreign banks operating in the country. While the focus was on the millions of retail clients when the foreign banks got into the Chinese market, they have shifted their core business to domestic companies; and fund their expansion abroad. This has been in the form of debt products to the companies aiming to set up shop in other countries outside China. By the close of 2015, foreign banks had 2.68 trillion-yuan worth of assets in China. That translated to US$ 389.4 billion. The value represents three times as much as they held in 2007, but a decline from 2014’s peak value, according to the CBRC (the Banking Regulatory Commission of China). Ideally, business is not good for many foreign banks in China.
The first foreign banks in China were Standard Chartered Bank, HSBC, Citi Bank, and the Bank of East Asia. They were local branches initially, but upgraded to corporate entities in the year 2007. Even so, the presence of such big corporate banks has not meant much as the foreign banks manage a measly 3% in terms of their total market share. As a matter of fact, a number of the foreign banks are selling their stake in mainland Chinese banks. For instance, Citigroup’s stake in China’s Guanfa Bank was, in 2016, sold for 23.3 Billion yuan. Similarly, Deutsche Bank sold the 20% stake it held in Huaxia Bank a year earlier.
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The expectations that foreign banks had for the Chinese market have largely been frustrated by the policies put in place by the Chinese government. The current regulations stipulate that foreign entities do not own in excess of 20% shareholding in the country’s domestic banks. The banks expected more market participation. This has been prevented by the equity caps. This has not stopped the foreign banks from lobbying for a larger participation space. Among the banks in the lobbying efforts are Credit Suisse bank; with other banks such as UBS aiming to focus on wealthy customers and expand them in the next few years. The other areas from which they aim to generate revenue are corporate bond issuance service fees, mergers and acquisitions and listings service fees. Those are lucrative business areas with mergers and acquisitions accounting for US$222 billion. For instance, ChemChina’s buyout of Syngenta was a takeover worth US$44 billion.
More cross-border business deals such as the Chinese “Belt and Road” project offer more opportunities for foreign banks operating in China. This spells more profits as compared to retail banking opportunities that have remained elusive to most of the foreign banks. Many retail banking clients cite many restrictions by the foreign banks operating China as one of the reasons the banks have struggled to gain market share. 21 of the 39 foreign banks in China have their headquarters in Shanghai. 70% of their loans, assets and deposits are in form of yuan services. Initially, they offered loans to multinationals but have since changed to Chinese companies. Making profits in retail banking has been difficult with BEA and HSBC reporting losses in 2016. Citibank China is focussing on digital retail solutions and hopes to make some money from that, but profitability will not be easy.
- Cheng, Leng. “Still minor players, foreign banks shift focus.” Shanghai Daily. 26 April 2017. http://www.shanghaidaily.com
- Yangpeng, Zheng and Maggie Zhang. “China eases licensing requirements for foreign banks.” South China Morning Post. 18 March 2017. http://www.scmp.com/business/banking-finance/article/2079946/china-eases-licensing-requirements-foreign-banks. Accessed 8 October 2017.
