New Frame for Foreign Banks in China

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The business structure change of foreign banks in china was placed under the limelight again. Recently， The Hong Kong and Shanghai Banking Corporation Limited （HSBC）， a whollyowned subsidiary institution of HSBC Holdings， sold the 8% stakes of Shanghai Bank it held to Banco Santander S.A. with the deal value of 3.629 billion HK dollars， or 468 million U.S. dollars.

The deal happened against this background： HSBC Holdings is now screening its invested projects globally. Any projects failing to meet the internal standard will be sold.

In recent two years， it was not rare news for foreign banks to quit their strategic investment into Chinese banks. For example， in March 2012， Citibank sold 506 million shares of Pudong Development Bank through the block trade. Many analysts said that foreign banks’ operating strategies in China were changing from “buying Chinese banks’ shares and establishing branches”to the “independent development”.

In that process， the foreign banks began to follow the more diversified strategies in China when choosing the concrete business.

The familiar path of Banco Santander

It is known that HSBC sold out its projects and assets based on the performance in the international connectivity， profitability and other four standards in total. After quitting the investment in Shanghai Bank， the capital base of HSBC could be further released， allowing the bank to invest into the business with bigger growth potentials.

Shanghai Bank announced that Banco Santander will build a cooperative team to launch the long-term and all-round cooperation with Shanghai through the collaborations， management improvement and business pattern trainings in the enterprise finance， SMEs， retail business， private banking， assets management and college finance.

In front of the big and important financial market of China， Banco Santander was definitely eager to get involved in the fast growing Chinese banking industry. However， as an analyst pointed out， Banco Santander is probably simply repeating the strategy of “walking with two legs” adopted by HSBC and Citibank before. It is still investing into Chinese banks to know the Chinese financial industry and market while earning the dividends of the growth in the Chinese banking market. In addition， it is opening more branches in China before it goes onto the way of independent development.

Early in 2010， Banco Santander was reported to work with China Construction bank in the village banks and automobile finance. In March 2013， Santander Consumer Finance Corp.， a subsidiary company of Banco Santander， invested 306 million yuan in Beijing Consumer Finance Corporation under Beijing Bank and got 20% shares of this company.

On the other hand， Banco Santander is bringing back its schedule of opening branches in China. Its branch in Shanghai was opened in August 2008 and got the qualification to do RMB business at the beginning of 2012. It also plans to build a branch in Beijing as of August 2013.

“Whether Banco Santander can have the coordinated development with banks in Beijing Bank and Shanghai depends on whether it can bring about the substantial business integration with the two Chinese banks，” an analyst said. However， the differences in the operating strategies， business patterns and corporate culture might be the hurdles for the coordination effect.

“Progress and Retreat”

In recent years， the foreign banks seemed to have less enthusiasm in the cooperation with Chinese banks in the shareholding structure. In the second half of 2013， ANZ Bank withdrew the plan of increasing the investment into Tianjin Bank and stated that the independent development was the core strategy of ANZ Bank in China.

Citibank also followed the same strategy. After selling out the stakes of Pudong Development Bank it held（2.71% of the Pudong Development Bank’s total shares）， Citibank also stopped the cooperation with the latter in the credit bank； instead， the American bank issued its own credit cards.

In the Tier II market， the foreign banks were also frequently found to sell the assets of Chinese bank in the past two years. In 2013 Bank of America sold 2 billion shares of China Construction Bank in the H-share market. An analyst of foreign banks in Shanghai said： “Even those foreign banks that do not sell their shares of foreign banks， they also reduce the cooperation with Chinese banks in the promotion of business or stop increasing their shares of Chinese banks.”

In comparison， foreign banks seem to be more focused on the independent business in China. In the past three years， the mainstream legal person banks in China increased their capital by 21.1 billion yuan even though they were not in good health around the world. Peter Wong Tung-shun， CEO of HSBC， said that HSBC was now committed to the development of independent business in China. Presently， it is still lifting two main independent businesses in China： the village banks and the branches.

The strategic adjustment， according to the above foreign banking analyst， was a trend among all foreign banks in China. The Chinese financial market is gradually open and more and more foreign banks can be involved in the retail business and RMB business. In 2007， the Chinese government allowed the branches of foreign banks to be registered as local legal person banks. In addition， the RMB internationalization is making substantial and fast progress， making the Chinese market more appealing for foreign banks.

“Foreign banks started to hate appearing only as the strategic financial investor. They want to be involved in the Chinese financial market more directly to have a big say in China and the future space to earn profits，” a banking analyst said.

Nevertheless， foreign banks followed different strategies in China even though they shared the same goal Recently， a banker from a foreign bank’s Shanghai branch said that their following strategy was to “develop the public business while promoting the retail business step by step”. Its main goal is to start the retail business in big cities and copy the pattern into other cities were it successful.

The bias towards the public business was a reasonable choice. Presently， the Chinese banks share almost the same development patterns that are homogenized， but international banks are differently positioned as they focus on big enterprises， community banks and banks with certain special businesses.

“The public business of foreign banks in China mainly involves the cross-border and international deals. Even in the credit projects， they will focus on the middle- and long-term financing or the comprehensive fundraising business combined with the investment bank. The short-term flow capital loans are quite risky for them and the cost is comparatively high，” he added.