|
By Tiger Tong, Contributor
As the best proxy to the fast-growing Chinese
economy, the banking sector in the country has been booming. By the
end of 2007, total assets of China’s banking sector reached
RMB52.6 trillion, indicating an average annual growth of 17.4
percent from 2003 to 2007. In 2007, banks in China raked in
RMB446.7-billion profit. And China has lifted geographic and
business restrictions for foreign banks, which provides a level
ground for foreign players since December 11, 2006.
Measured by assets growth rate, foreign banks
have been the best performers in China’s banking sector. As a
result, its market share had increased from 1.5 percent at the end
of 2003 to 2.4 percent at the end of 2007. But clearly, there is
still a long way ahead for foreign banks to become a relatively
important player. One direct reason is the less extensive network
they have in China compared with other domestic banks.
At the end of 2007, the big four state-owned
commercial banks, which accounted for about 50 percent of the market
share, had a network of 65,400 outlets. In contrast, the number of
operating outlets (namely excluding repo offices) of foreign banks
was only 440, less than 1 percent of the big four.
To enhance their competitiveness, foreign banks
have adopted a geographic concentration strategy. On May 30, the
People’s Bank of China, China’s central bank, released the 2007
Regional Financial Operation Report, which has shed some light on
how foreign banks operate at provincial levels.
According to the report, by the end of 2007,
foreign banks had established their presence in 15 provinces of all
the 31 provinces in mainland China. Not surprisingly, Shanghai, the
financial center of China, is the single most important market for
foreign banks. By the end of 2007, out of the 440 foreign bank
operating units, 131, or 30 percent of them were in Shanghai, and
their assets accounted for 58.1 percent of total assets held by
foreign banks in China. Indeed, out of the 24 locally incorporated
foreign banks, 13 of them chose to set headquarters in Shanghai.
Another two important markets are Beijing, China’s capital, and
Guangdong, China’s biggest economy and exporter. The combined
assets of the operating units in the three markets accounted for 85
percent of the total assets of the foreign banks in China.
By the end of 2007, foreign banks in five
provinces (municipalities), namely Shanghai, Guangdong, Beijing,
Fujian and Tianjin had a market share higher than national average,
with Shanghai taking the lead. By the end of 2007, foreign banks in
Shanghai accounted for 14.5 percent of the local market share, six
times the national average.
The presence of foreign banks in China provides
a very useful roadmap for potential investors to tap on China’s
booming economy. But what is the next step for those banks already
in China, and if there is an alternative map for newcomers to go
directly to avoid stiff competition from banks like Citibank or HSBC?
In fact, there is one.
In China, foreign banks are not the only ones
incapable to compete with the big four by the extensiveness of
networks, and therefore have to adopt a geographic concentration
strategy. The closest masters foreign banks can learn are the
joint-stock commercial banks. Their presence can also be seen in the
central bank report. It should be noted that, following the standard
of People’s Bank of China, Bank of Communications is categorized
as a joint-stock commercial bank in this article, while Bank of
Communications had been reclassified by the China Banking Regulatory
Commission as a state-owned commercial bank since 2007.
By the end of 2007, the 13 Chinese joint-stock
commercial banks had a network of 5,884 outlets, or 9 percent of the
big four. It is very likely that the trajectory of foreign bank
expansion would run parallel to the joint-stock commercial banks.
The ratio of joint-stock commercial banks/big four either by the
number of networks or assets will mark their geographic priority.
The province will stand out easily when it has a high joint-stock
commercial banks/big four ratio and a substantial low market share
for foreign banks.
Surprisingly, Tibet ranks the first in this
study. But considering the relatively small size of its banking
sector and other factors, we will not take Tibet into account.
Excluding Tibet, four out of the top 10 provinces with a strong
presence of joint-stock commercial banks have a very low presence of
foreign banks. They are Zhejiang, Jiangsu, Hubei and Chongqing. Take
Zhejiang, the most dynamic private economy in China, for example. By
the end of 2007, the joint-stock commercial banks accounted for 15
percent and 48.2 percent of the big four in terms of the outlet
number and assets respectively. In contrast, foreign banks had only
a 0.3-percent market share in the province, far lower than the
national average.
Despite the huge market potential in China, it
will not be easy for foreign banks to make a difference and
eventually succeed in China as Chinese banks have been learning
fast.
___
Tiger Tong is an analyst with China
Knowledge, a premier provider of trade and investment information on
China. Opinions expressed are his own.
|
