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Banks in Post-WTO China: Opportunities, Challenges and Strat
发布时间：2015-10-29 发布人：admin
XU BULIN
1. China’s WTO Commitments: an Introduction
China committed to open its banking sector when joining the WTO. In accordance with requirements of WTO GAST China has a strong incentive to move quickly.
China ‘has been issuing new regulations to implement China’s WTO commitments and will continue to do so as more activities’.[1] By 11 December 2006, existing non-prudential measures of restriction on ownership and operation will entirely be eliminated.[2] Licenses will be granted to foreign applicants only based on prudential criteria, without limitation on the number of licenses or other restrictions such as economic needs tests. The prudential criteria, said Mr. Dai Xianglong of the ex-president of People’s Bank of China (PBOC), should be insisted as a principle on the administration to grant license.[3]
China has promised that, within five years after accession to the WTO, geographical and clientele restrictions will gradually be removed. Foreign currency business to foreign banks and car-loan business to foreign non-bank financial institutions were immediately opened as soon as China gained the membership of the WTO. Foreign banks were permitted to operate local currency business to companies in selected cities in the 2nd year, and then to all individuals in all regions in the 5th year. Also, geographical barriers will gradually fall. To date, Chinese government has opened up 13 cities, the number of which will continuously increase within the next two years, and then there will be no geographical restrictions. Eventually, full market access will be provided for foreign banks.
2. An Overview of Banks in China
2.1 Domestic Banks
At China, the banking market is dominated by four big state-owned banks–Industrial & Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB) and Agricultural Bank of China (ABC), which totally own about 60% -80% of market shares, and have large and extensive branch-networks and employ over 1.7 million people. Apart from these ‘Big-four’, China also has three policy banks and 11 joint stock banks (owned by shareholders), as well as many other financial institutions. ‘By the end of May, the total assets of China’s banking industry amounted to 29 trillion Yuan (US$3.45 trillion), or 90 percent of the total assets of the country’s financial industry.’ [4]
Even though China’s marketization and economic reform have been implemented for many years, domestic banks still have some serious problems. By way of example, as Mr. Dai said in 2002, the total amount of non-performing loans (NPLs) was estimated at 25.4% to 40% of their total assets, where CN￥600 billion was actually lost, amounted to 8% of total loans.[5] The NPLs cannot be satisfactory to control even though the government continuously injects fiscal revenue into those banks. This phenomenon, so-called ‘severe vicious circle’, is due to structural and functional defects of the banks, and has attracted considerable attention of both the government and the banks. In recent years, Chinese government and the PBOC were attempting to reform and commercialize the Big-four banks. Four Asset Management Companies (AMCs) were established in 2000 to absorb and restructure the NPLs. According to governmental schedule, within after 3 years, the banks will be restructured to be joint-stock banks, expected to issue shares to public.
2.2 Foreign-invested Banks in China
By the end of 2001, there had been hundreds of foreign banks or their branches operating businesses in opened cities. Total assets of the banks had achieved US$45.2 billion, around 2% of all assets in China’s financial sector. Their foreign exchange loans were about 15% of totality of such business in the market. 31 foreign banks were allowed to operate RMB business, and at that moment, their RMB assets had reached CN￥45 billion.[6] By the end of July of 2002, 44 foreign banks had been allowed to operate RMB business and their RMB total assets had reached CN￥44.58 billion. From January to July of 2002, profits from RMB business were CN￥184 million that grew up by 13.58%, and profits from foreign exchange business reached US$119 million, increased by 21.43%.[7] In the first two years of china’s WTO entry, the number of foreign-invested institutions entering Chinese financial market constantly increased, by August of 2003, the number of foreign financial institutions, foreign banks and agencies of foreign banks was 184, 151 and 221, respectively.[8]
At the end of this June, China Banking Regulatory Commission (CBRC) indicated that, a total of 100 foreign banks were permitted to operate RMB business, 53 of which had been approved to provide RMB services to Chinese enterprises and the remaining 47 could only provide RMB services to foreign-invested companies. The foreign banks had established around 200 operating entities in the 13 opened cities. Their RMB-denominated assets totaled 84.4 billion Yuan (US$10.2 billion), a 49 per cent year-on-year rise. Their profits from RMB operations stood at 267 million Yuan (US$32 million) in the first half of this year.[9]
3. Opportunity or Challenge?
China’s accession to the WTO means that some original restrictions on foreign banks’ operations will entirely be revoked in a few years. Clearly, Chinese banks have to face tough competitions with foreign banks for competent staffs, high-quality customers, profits, and even for the public’s capital from stock market. As Dr. Y Wang remarked, ‘If foreign banks capture the most profitable segments of the market, leaving domestic banks more exposed to the less profitable segments, domestic banks may have an incentive to take on greater risks (Hellmann, Murdock and Stiglitz, 2000), and in the short or medium run, domestic banks may lose some high quality customers and suffer losses in their profit margins’.[10] The competition from foreign banks exposes domestic banks’ weakness and it is therefore a big challenge for Chinese banks. In this situation, Chinese banks have to promote efficiency for survival. In certain sense, the competition – the challenge - may otherwise be a strong impetus for Chinese banks to learn more from competition and to initiate a creative management. Thus, it would also be a great opportunity for improvement of Chinese banks. In fact, Chinese banks still remain some advantages in competitions such as host-market advantage, and their main problems is externally originated from political factor such as employment, survival of state-owned enterprises and so on. If the government restrains to interfere the operations of the Chinese banks, then the banks are very likely to improve rapidly. If the banks seriously implement reform and found good strategies, they can undoubtedly be excellent competitors in Chinese market, and may further extend their businesses abroad with the same principles of WTO.
By comparison with Chinese banks, foreign banks are sophisticated, having sufficient capital, financial products and market-approved expertise. According to China’s WTO commitment, they have gained, and will get more, opportunities to extend their business, and will then be entitled to full National Treatment after 11 December 2006. Therefore they may easily be ahead of Chinese competitors in the market. On the other hand however, foreign banks are simultaneously losing some specifically preferential treatments provided by former regulations or policies launched to encourage foreign investments. Additionally, Chinese banks continuously boost the competency to challenge their foreign competitors. Foreign banks have therefore found some difficulties on their business. ‘Foreign bank operations in China remain smooth and stable, but certain risks still demand attention.’[11] During 2002, according to statistics, non-performing loan rate of 24 foreign banks exceeded 20%, and seven of which having the rate climb as high as 90 %. Foreign banks’ share of foreign currency loans fell from 15% in 2001 to 7.4%, and their share of total assets of the banking system dropped from 2% to 1.1%. Their market share is likely to fall further in 2003.[12]
Is competition a challenge or an opportunity? The challenge always coexists with the opportunity, and therefore the competition will bring both to all participants. ‘China’s entry into the World Trade Organization is neither a disaster nor a panacea for its (Chinese banks’) problems’.[13]The situations are the same for foreign banks.
4. Competitive Strategies
For Chinese banks, ‘Painful change is inevitable whether China joins WTO or not. The entry only speeds up the process.’[14] When ‘facing foreign competition, Chinese banks will have to lay off workers, reduce redundancy’.[15] Redundancy of the ‘Big-four’ is a structural problem that has resulted in inefficiency and over-expenditure. From 1999 to 2002, said Mr. Tang Shuangning, a Vice-director of the CBRC in WTO & China Beijing International Forum, four state-owned banks totally reduced 45,000 agencies and 250,000 staffs,[16] and the actions as such will continue in future years. In addition, for the purpose of decreasing NPLs, in 2000, PBOC had organized the transfer of NPLs amounted to CN￥1.3 trillion from Big-Four to Four AMCs.[17]
For a long time, Chinese banks, especially the ‘Big-Four’, have always been operating their businesses in accordance with political needs rather than commercial needs. The core issue of reforms and adjustments is the establishment of commercial standards in their businesses, by which the banks can operate their business in line with market needs but directives from government and local authorities. This year, Xinda AMC purchased CN￥19.7 billion from BOC and CCB,[18] which will be restructured as join-venture banks, and after them ICBC and ABC will follow on in the schedule.It is actually a better way for setting up a new marketing mechanism, and in such performances, foreign banks have been allowed to play a role.
Expectancy of some foreign investors is often beyond the degree China can provide. Some variances still exist between Chinese regulators and foreign investors. Some argued that, ‘China’s business environment has in some respects become even more difficult than it was before China’s WTO accession’[19] Some of the investors realize the supervision has made foreign banks’ life more difficult.[20] In fact, one of the causes brought them to difficulties is that Chinese banks have changed rapidly and have learned more from them. It is important to be noted that, although China will fully open up its market, such market will still be the Chinese market but not any other countries’ market at all. For foreign banks, the new participants of Chinese financial market, the most important thing is to learn more about Chinese laws, regulations and Chinese tradition, and to carefully consider striving to mix into Chinese society and to make their business operations approach the needs of the public.
To establish Chinese-foreign joint venture banks may be a better choice that should be taken into account. ‘Joint-venture banks in the next few years,’ one predicted in 2000, ‘the greatest opportunities for foreign institutions might be found in cooperating with and investing in second-tier domestic banking group.’[21] Recently, many Chinese banks and foreign banks were discussing the issue of collaboration. In May of 2003, for instance, Citibank paid US$ 72.5 million and successfully became a shareholder of Shanghai Pudong Development Bank (SPDB) with 4.62% of shares, which will be very likely to increase up to 24.9% in 2008 according to the agreement between these two banks. [22] It is achievable because the new regulation allows foreign banks to increase their stocks in domestic banks, up to 25 per cent,[23] Up to now, ‘six joint-stock commercial banks and city commercial banks in China have got official permission to absorb foreign investment.’[24]
Foreign banks, via joint venture banks, can share the Chinese banks’ host-market advantages, and make their business plan fit in Chinese circumstances. On the other hand, as Zhang Yanling of a vice-president of PBOC said, ‘foreign investors would bring in expertise and funds, but would also require domestic banks to upgrade themselves’. Chinese banks will learn more about management, profitability and asset scale from their foreign partners, to carry out comprehensive reform to build up commercial standards. The collaboration is therefore advisable and lucrative. Joint venture will benefit both Chinese and foreign banks, and make them easier to extend business and gain profits.
5. Conclusion
According to China’s WTO commitments, after the end of 2006, China will fully open up its banking market, where Chinese and foreign banks will operate their business under the same conditions in line with requirements of the National Treatment and other WTO principles. Unavoidable competition is stimulating both banks to further effort, to seek appropriate strategies and to seriously implement their reform and adjustment, in order to eventually adapt themselves to the new situation of the market in Post-WTO China. The competition may lead to a constructive collaboration instead of the hostile antagonism, and the joint venture is a mechanism to achieve mutual benefit for either one of competitors in the Post-WTO at China.
Reference
Allens Arthur Robinson, Banking on China: Issues Facing overseas Banks in China, March 2003
Chen Yao, Foreign Banks Persist with Biz, Business Weekly, 09/2003, P 5
Dai Xianglong, Lecture in Title of ‘Chinese Banking Industry after WTO Entry’, 02/2002
Dai Xianglong, Lecture on ‘Ceremony of Spring Festival with Foreign Financial Institutions’, 02/2002
C. Christopher Parlin, Current Development Regarding the WTO financial Services Agreement, 2003
Heinz Hauser, China and the WTO, 2001
Mark Goldfrey, Barriers in Services Sectors, 2004
Mitsuo Matsushita, Thomas J. Schoenbaum and Petros C. Mavroidis, The World Trade Organization, Law, Practice, and Polocy, Oxford, 2003
Robert Vastine, Implementation of China’s WTO Commitment to Liberalization of Trade in Service, 18/09/2002
Survey: Money Worries, The Economist, London, 15/06/2002, Vol. 363, p8.
Special Issue: China: All in Good Time, Commentary by the World Trade Organization, Asiaweek, Hong Kong, 30/05/2001, p1
Stefan Bienefeld, The World Trade Organization (WTO) and General Agreement on Trade in Services (GATS)-an Introduction, 2001
Stephen M Harner, Financial Services and WTO: Opportunities Knock, the China Business Review, 2000, Vol.27, P 10-13
Understanding the WTO, published by World Trade Organization, 3rd Edition, 2003
Xianlei Wang, Analysis of Chinese Policies on Opening of Financial Market, 01/2003,
Yan Wang，Services, GATS, and Key Issues in Financial Sector, 2003,
Zhuang Lu, China’s Industrial and Commercial Daily, 08/2003,
News from Newspaper or Website:
Banking Investment Curb to Be Eased, China Daily, 11/09/2003.
China to Lift Restriction on Foreign Banks, News, 01/07/2004,
China to Raise Foreign Banks Ownership Cap, International News, 01/11/2003,
Financial Giants Dominate Foreign Banks in China, 30/09/2003,
News, Beijing Qingnian Daily, 12/11/2003
News, Macro China, 15/09/2000
Regulator to Strengthen Supervision on Foreign Banks, China Daily, 26/08/2003,
Yanxia Xie, News, South City Daily, 21/09/2003,
Useful Website:
www.aar.com.au
www.aic.lv
www.chinadaily.com.cn
www.chinafiw.com
www.chinafiw.com
www.china.org.cn
http://business-times.asia1.com.sg
www.eastwestlaw.com
http://finance.sina.com.cn
http://english.peopledaily.com.cn
http://gateway.proquest.com
www.nhh.no
www.pbc.com.cn
http://sg.biz.yahoo.com
www.sinomedia.net
www.16d.net
www.unirule.org.cn
www.uts.edu.au
www.wto.org
[1] Robert Vastine, Implementation of China’s WTO Commitment to Liberalization of Trade in Service, 18/09/2002
[2] C. Christopher Parlin, Current Development Regarding the WTO financial Services Agreement, 2003
[3] Dai Xianglong, Speech on ‘Ceremony of Spring Festival with Foreign Financial Institutions’, 01/02/2002
[4] China to Lift Restriction on Foreign Banks, News, 01/07/2004
[5] Dai Xianglon, Lecture in title of ‘Chinese banking Industry after WTO Entry’ 02/2002
[6] Dai Xianglong, Lecture on ‘Ceremony of Spring Festival with Foreign Financial Institutions’, 02/2002
[7] Xianlei Wang, Analysis of Chinese Policies on Opening of Financial Market, 01/2003
[8] News, by Zhuang Lu, China Industrial and Commercial Daily, 27/08/2003
[9] Zhang Dingmin, Foreign banks broaden scope, China Daily, 20/07/2004
[10] Dr. Yan Wang，Services, GATS, and Key Issues in Financial Sector, 2003
[11] News: Regulator to Strengthen Supervision on Foreign Banks, China Daily, 26/08/2003
[12] News: Financial Giants Dominate Foreign Banks in China, 30/09/2003
[13] Special Issue: China: All in Good Time, Commentary by the World Trade Organization, Asiaweek, Hong Kong, 30/05/2001, p1
[14] Special Issue: China: All in Good Time, Commentary by the World Trade Organization, Asiaweek, Hong Kong, 30/05/2001, p1
[15] Special Issue: China: All in Good Time, Commentary by the World Trade Organization, Asiaweek, Hong Kong, 30/05/2001, p1
[16] News, Beijing Qingnian Daily, 12/11/2003
[17] News, Macro China, 15/09/2000
[18] News (Source: Nanfang Daily), 24/5/2004
[19] Mark Goldfrey, Barriers in Services Sectors, 2004
[20] Mark Goldfrey, Barriers in Services Sectors, 2004
[21] Stephen M Harner, Financial Services and WTO: Opportunities Knock, the China Business Review, 2000, Vol.27, P 10-13
[22] News: Banking Investment Curb to Be Eased, China Daily, 11/09/2003. See also China to Raise Foreign Banks Ownership Cap, International News, 01/11/2003, News of South City Daily, by Yanxia Xie, 21/09/2003
[23] Chen Yao, Foreign Banks Persist with Biz, Business Weekly, 09/09/2003, p 5
[24] China to Lift Restriction on Foreign Banks, News, 01/07/2004
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