|
|
|
|
Tough times ahead for China's
banks
BEIJING - Ten Chinese
banks have sold shares to foreign capital
financial institutions, including Citibank and
HSBC, and eight more are negotiating with foreign
banks on the issue, according to Liu Minggang,
chairman of the China Banking Regulatory
Commission. Liu deems such strategic cooperation
as win-win since Chinese banks have reported huge
improvements in the functioning of their board of
directors, risk control, marketing and business
management as a result.
China's financial
institutions had used US$3.186 billion of foreign
investment by the end of 2004. But the full impact
of compliance with World Trade Organization (WTO)
norms remains to be felt for the country's
financial companies. China's financial
institutions will encounter real challenges from
foreign competitors in the next five to six years.
So it would be a mistake for them to lower their
guard just because there hasn't been any over the
past three years.
China pledged to
gradually open up its financial sector to foreign
companies upon its WTO accession in late 2001.
Many government departments and research
institutions have predicted that foreign banks
will seize 15% of China's foreign exchange savings
market and 5-20% of the yuan savings market in
another couple of years. These banks are also set
to capture more than one-third of China's foreign
exchange loans market and about 15% of its yuan
loans market, they warn.
This means that
China's financial institutions will face great
challenges from foreign competitors both in terms
of profits and personnel. But the current
competition is far from serious. Foreign financial
institutions' market share is much less than what
had been anticipated. Some foreign institutions
have also encountered difficulties in the Chinese
market though they had entered the market early.
Between February 2001 and July 2002, 22
foreign insurance companies and 30 representative
offices pulled out of China. Some insurance
companies, which had previously opened
representative offices in different cities across
China, thought there was no need to keep open so
many offices, something that was proving very
costly. Some other companies also reorganized
their China operations as a result of the mergers
of their parent firms.
Some firms were
forced to streamline their operations due to a big
drop in their profits following the September 11,
2001, terrorist attacks. More importantly, some
foreign insurance companies found that their lack
of awareness of the local market meant that,
despite their advanced technology and rich
experience, they failed to drum up enough business
in China. The localization of foreign insurance
companies, including information collection and
product design, could take at least two to three
years.
Similar events are taking place in
China's banking industry. Foreign banks had 190
business operations and 214 representative offices
in China in 2001, but these figures dropped to 180
and 211 in 2002. The number of foreign banks to
open branches or representative offices in China
began to pick up again in 2003 and 2004. By
October 2004, foreign banks had set up 223
representative offices and the same amount of
business operations in China, a record level.
These banks' total assets had also
increased. By October 2004, the combined assets of
foreign banks were 12 times their 2001 level. More
importantly, foreign banks' profit capability
increased greatly. They reported profits of $235
million in 2003, an increase of 20% from 2001.
Foreign financial institutions' business expansion
in China helped bring vigor to the country's
financial market. This was beneficial in terms of
breaking financial monopolies and improving
financial efficiency, which was good news for
consumers. Foreign financial institutions'
participation in the Chinese market also helped
bring in advanced management experience and
promote financial renovation.
Foreign
institutions will bring about new challenges for
China's financial industry. The market expansion
of these institutions will result in the shrinkage
of domestic companies' market share. The shrinkage
and a reduction of quality clients will lead to a
decrease in profitability for domestic financial
institutions. For example, domestic banks will be
at a disadvantage during competition because they
have heavy historical burdens.
Foreign
financial institutions may also pose a
considerable threat to domestic companies in terms
of core personnel. The real challenge will come in
the next five to six years. Facing this challenge,
domestic financial institutions will have to try
and solve historical issues through reforms and
find a way toward sustainable development.
China's four major state-owned banks - the
Industrial and Commercial Bank of China, the
Agricultural Bank of China, Bank of China and the
China Construction Bank - rank 16th, 25th, 15th
and 37th among the world's top 1,000 banks. But
the non-performing asset (NPA) rate of the China
Construction Bank, whose NPA was the lowest of the
"big four", was more than eight percentage points
higher than any banks ranking higher than it.
Despite the central government's injection of $45
billion in the China Construction Bank and Bank of
China and the writing off of part of
non-performing assets of the "big four", their
average NPA remained at 15.62% at the end of last
year.
There is no integrated securities
market in China because shares are divided into
tradable and non-tradable ones. The country's
total market capitalization was 3.7 trillion yuan
($446.5 billion) in 2004, according to figures
from the China Securities Regulatory Commission.
Tradable shares were only valued at 1.16 trillion
yuan. The non-tradable stocks accounted for as
much as 68% of total market capitalization. It
will take some time before state shares and shares
held by state-owned institutions become tradable.
The separated stock market leads market
performers to indulge in greater speculation,
bringing with it high risks. Under these
circumstances, state-owned companies are keen to
"take money from investors' pockets" while the
return on their equity has declined. Investors
tried to make short-term profits and some
securities firms conducted illegal operations. But
the regulatory body has beefed up its efforts to
force unqualified listed companies out of the
market. If the government fails to properly sort
these issues, China's financial system will be at
grave risk.
(Asia
Pulse/XIC) |
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
