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Banking sector liberalised further: will foreign enterprises be allowed to enter next?

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According to a report in the Financial Times on 14 October, reproduced in full here and available via the link below, companies from various sectors in China have shown enormous interest in an invitation to apply for banking licences.
 
Big appetite for new China banking licences
By Simon Rabinovitch in Shanghai
 
Would you like a 30-year mortgage to go with your air conditioner? How about no-fee chequing along with your flatscreen television? These are the kinds of questions Chinese manufacturers and retailers could soon be asking customers if they get their way and are permitted to set up banks.
 
In an attempt to shake up the country’s slow-moving financial industry and create more investment opportunities for the private sector, Chinese regulators have invited companies from across the spectrum to apply for banking licences.
 
The appetite has been voracious. Applicants include electronics retailer Suning, air-conditioner maker Gree and leading internet companies such as e-commerce giant Alibaba.
 
Their desire to break into banking is hardly mysterious: the business is hugely lucrative thanks to fat lending margins as a result of controlled interest rates. China’s five biggest banks accounted for 35 per cent of the profits of the country’s 500 biggest companies last year, according to the China Enterprise Confederation.
 
Even just a small piece of that action could be worth a lot, and so market reaction to the potential of these new banks has been little short of rabid. The share price of Suning has doubled over the past two months, to its highest in more than two years.
 
But for bricks-and-mortar retailers struggling to find their footing amid a boom in e-commerce, the sudden zeal for finance is more a sign of weakness than strength. “They are closing stores, putting all their products online, and they are also moving into other product categories,” says Steve Chow, an analyst with Sunwah Kingsway. “They have no choice but to try everything, including banking.”
 
Suning appears to have stolen a march on its rivals, having already registered the name Suning Bank with the state administration for industry and commerce, a market regulator. But the 21st Century Business Herald, a local financial newspaper, has reported that final approval might not come until March, and in the meantime other companies are likely to submit applications.
 
Gree threw its hat in the ring in late September. Gome, an electronics retailer, and even large department stores such as Parkson are also seen as possible candidates.
Analysts say investors have got far ahead of themselves and that the reality will be rather more sedate for this new breed of Chinese bank, with regulators expected to place tight parameters on their operations. “They may not do traditional deposit and loan banking. They are trying to establish online payment systems,” Mr Chow says. “It’s quite different from what traditional banks are doing.”
 
Yet even if the new banks are limited in scope, the mere fact of their creation would signal that regulators are moving to open the financial industry further as part of a broader reform push to reduce the power of state-owned companies.
 
“We will promote trials by private capital to initiate the establishment of private banks responsible for their own risks,” the State Council, or cabinet, said in August. The hope is that banks backed by private investors rather than the government will be more willing to lend to the smaller, private companies often neglected by state-owned banks.
Beijing has allowed non-state investors to establish banks before – the best example is Minsheng Bank, founded in 1996 by Jing Shuping, a well-connected businessman – but these efforts have been limited.
 
Plans to establish a private bank in the city of Wenzhou to cater to smaller business have foundered with few investors backing the project. The central government-backed Wenzhou bank experiment was seen as a way of formalising the large number of illegal underground banks in the city that were lending at usurious rates to cash-starved private businesses.
 
Nevertheless, a signal of greater openness does not mean that regulators are ready to fling the doors open. The establishment of new, private banks will probably be a small, controlled experiment, said one analyst, who requested anonymity, after recently meeting with regulators.
 
“Allowing private enterprises to go into banking sounds interesting from a high level, but do they really have the expertise to manage a bank and manage risks?” he said. “Chinese bank regulators tend to like a more concentrated system because it’s easier to oversee.”
 
 
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