China Finance

Resistance to foreign Banks after WTO

• Foreign banks must have US$72.3 m in operating capital to conduct full services (higher than expectation)
• Only open a new branch a year
• Pricing out the foreign banks
• Offering loans with low interest rate (even below LIBOR), e.g. BP syndicated loans
• Direct lending by Chinese banks to foreign firms without using standby letter of credit from a foreign bank if the firm fails (a practice required by foreign banks)
• Central Bank requires financial institutions to maintain 60% of registered capital in local currency and demonstrate “a need” for an office. The rule force banks to disperse capital to individual branches rather than concentrating it at headquarters, boosting operating costs

• China’s 80 financial local institutions have announced plans to complete a national bank card network (costing $200 m) by 2005 to combat increased foreign bank competition. It aims to reach 40 cities. HSBC, Citbank and Bank of East Asia have given approval to offer foreign currency services to Chinese citizens in Beijing and Shanghai. Note: Ericsson incident– The Nanjing-based Ericsson joint venture (Swedish electronics company) reported to dump its Chinese banks in favor of Citbank because they cannot offer services similar to the US competitor. (3/28/02 FT)

• • China’s 80 financial local institutions have announced plans to complete a national bank card network (costing $200 m) by 2005 to combat increased foreign bank competition. It aims to reach 40 cities. HSBC, Citbank and Bank of East Asia have given approval to offer foreign currency services to Chinese citizens in Beijing and Shanghai. Note: Ericsson incident– The Nanjing-based Ericsson joint venture (Swedish electronics company) reported to dump its Chinese banks in favor of Citbank because they cannot offer services similar to the US competitor. (3/28/02 FT)

Counter Strategies by foreign Banks

• HSBC bought 8% stake in the Bank of Shanghai in 2001; International finance corporation (private arm of World bank) bought stakes in Pudong Development Bank and the Nanjing city Commercial Bank.
• Investment in small Chinese banks allows up to 25% (which helps smaller Chinese banks for foreign capital).
• Four big banks are expected to lose 1/3 of their most qualified staff to foreign rivals, which offer better pay, bonuses and training opportunities.
• Foreign banks now has 5% foreign deposits, 20% foreign loans, and 40% export settlements. They target the big customers for the big 4 banks which derive their 60% profits form these 10% clients. The services include personal finance, credit cards, internet and telephone banking and consumer credit.