As the bailout and restructuring of China's state banks continues, foreign banks are steadily expanding their reach into the Chinese market, jockeying for position ahead of further WTO-mandated liberalizations.
China is scheduled to lift restrictions and open its banking sector to foreign financial institutions and investment banks by the end of 2006. But competition for the world's largest market has already begun.
Foreign banks, some of which have been operating in a limited way in Beijing and Shanghai for years or even decades, have started looking at China's second and third-tier cities to generate new revenue.
Japanese banks are pushing into areas with high concentrations of Japanese companies such as Suzhou, Wuxi, Hangzhou and Guangzhou. Sumitomo Mitsui Banking Corp, Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi and UFJ Bank have all filed applications to open new Mainland branches in cities other than Shanghai and Beijing.
Last year, Newbridge Capital's attempt to acquire a controlling stake in Shenzhen Development Bank collapsed after shareholders reneged on an agreement to sell their shares. Months later, Newbridge agreed to acquire a more modest 4.8% stake in Minsheng Bank, characterized as a private bank, which is planning an IPO.
Aside from opening new branches in untapped markets, banks have also launched credit card services on the mainland with Shanghai as the initial focus. Citibank and HSBC were the first approved to launch foreign-branded renminbi-based credit cards in China, which they did with local partners Shanghai Pudong Development Bank and Bank of Shanghai, respectively. ANZ Bank entered into a partnership with Shanghai Rural Credit Cooperatives Union in December 2003 to develop credit card products.
Marcus Wassmuth, chief of Landesbank Baden-Wurttemberg's Shanghai representative office, said that the general mood of the foreign banking community was much more optimistic than a year ago, as the lifting of geographical and other restrictions nears. "As soon as the restrictions are lifted, then it will be seen which banks are really interested in the Chinese market," Wassmuth said. "I believe there are banks that are hiding behind these restrictions which will not have the resources or the will to do business here."