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Banking Services- China

Banking Services

China

Overview

With the full opening of the banking sector to foreign banks on December 11, 2006, there are ample export opportunities for the development of foreign commercial banks in Chinese market, though major Chinese commercial banks will continue to dominate the retail banking market. Domestic commercial banks have undergone effective reforms in restructuring. A dynamic process of interaction and integration is already underway between domestic and foreign banks as noted by the strategic investments made by foreign banks. In short, cooperation and competition will co-exist between Chinese banks and foreign banks.

Best Products/Services

- Private banking services and wealth management which target high end and middle end customers:

Nearly 30 Chinese banks currently offer RMB-denominated wealth management services, with a total investment value of 130 billion yuan (USD16.46 billion). Most foreign banks consider providing RMB-denominated private banking services and wealth management service as two of their best business prospects in China.

- Credit Cards:

Foreign-funded banks can issue RMB-denominated credit cards after they become locally incorporated banks. All foreign-funded and Chinese banks are required to have good risk management and control systems and IT support systems in place to hedge risks in the issuance of credit cards in China.

The People's Bank of China, the central bank, will be responsible for the operation and management of the payment system. Further details regarding the issuance of credit cards by foreign banks in China will be clarified in the credit card management regulations which will be issued soon.

- SME Financing Market:

According to an official report, the products manufactured or services offered by China’s 40 million small and medium sized enterprises (SME) comprise more than 59 percent of China’s GDP in 2005. These enterprises constitute more than 99.6 percent of the total number of companies in China. Additionally, SMEs accounted for 70 percent of the nation’s import and export trade volume. Some Chinese banks, especially city commercial banks, consider SMEs as their target clients. More and more foreign banks in China are beginning to realize the great opportunities available through offering financing to SMEs.

- QFII custodian & QDII:

In 2003, a qualified foreign institutional investors (QFII) scheme was introduced to allow foreign institutional investors, such as UBS, Deutsche Bank and Citigroup Global and others to engage in the securities sector on the Chinese mainland. At present there are 50 approved QFII entities. Industry sources estimate that more overseas capital will enter China’s stock market through QFII.

At the same time, a total of 17 foreign and Chinese banks have been approved to invest clients' assets overseas under the qualified domestic institutional investor (QDII) program. So far, they have launched nine QDII products, with sales of 2.3 billion Yuan (USD291 million) in RMB-denominated transactions and USD87 million in US dollar-based transactions.

- Derivatives Trading Market:

Foreign banks may take the lead in the derivatives trading market, because Chinese banks are less experienced in this field.

- Corporate Financial Advisory Services and Alternative Asset Management:

Currently, Chinese commercial banks are not allowed to provide investment banking services to corporations. However, other financial service institutions such as the China International Capital Corporation Limited (CICC) are permitted to offer this service. Therefore, foreign banks that can offer both commercial banking and investment banking services will be competitive.

Opportunities

1. Retail banking sector:

China’s high net worth individuals (who have assets larger than USD1 million to invest) are an important segment. Their combined total wealth is estimated to be second only to Japan in Asia. With more wealth, Chinese citizens now pay attention to personal finance or wealth management products.

In addition, with the increase in the number of individuals purchasing houses, cars and consuming other products, banks that offer better mortgages, auto loans, credit card products and other services will have competitive advantages.

2. Corporate banking sector:

Since large private and state-owned enterprises can now obtain financing from the capital market, they become less dependent upon the bank’s loans. SMEs are becoming valuable clients to both the Chinese and foreign banks. At present, only 30 percent of SMEs financing demands can be satisfied because they normally find it difficult to obtain any type of credit from the large banks. Most second-tier joint stock banks and city commercial banks have already made the SMEs their target clients. Standard Chartered, CitiBank and HSBC have all started SME financing activities. In comparison with Chinese banks, foreign banks have more experience in market segmentation, better credit and risk control, good access to the international market and more simplified procedures for credit approvals, all of which serve to attract Chinese enterprises as clients.

Resources

Key Websites:

People’s Bank of China (PBC)

www.pbc.gov.cn

China Banking Regulatory Commission (CBRC)

www.cbrc.gov.cn

Bank of China Limited

www.bank-of-china.com

Industrial and Commercial Bank of China

www.icbc.com.cn

China Construction Bank Limited

www.ccb.cn