British banks look to expand Asian foothold with China deals

British banks look to expand Asian foothold with China deals

Pierre Pratabuy, Agence France-Presse, London

The race is on among international banking groups for a stake of the Chinese market as Beijing loosens its grip on the sector, and British banks are already ahead of many of their rivals thanks to a long-standing presence in the region.

Standard Chartered, the British-based emerging markets bank, recently signed a deal to take a 19.99 percent stake in Bohai Bank, a private lender being set up in northern China.

In August HSBC agreed to pay US$1.75 billion to buy a 19.9 percent stake in China's Bank of Communications -- the biggest single purchase by a foreign investor in China's banking sector, adding to an eight percent holding it owns in Bank of Shanghai.

China allows foreign companies to own up to 20 percent of Chinese banks.

In September HSBC said it would team up with Shanxi Trust and Investment Corp to form a joint venture fund management company in China.

Both British-based banks have well-established footholds in Asia.

HSBC, formerly Hong Kong Shanghai Banking Corporation, boomed on the back of trade between China and Europe after its creation in Hong Kong in 1865.

Both are now in the vanguard of the battle by foreign banks for a piece of the Chinese banking market, which is being slowly opened up following China's entry into the World Trade Organization (WTO) in late 2001.

"They have very long histories there and they're exploiting the opportunities after they come up," said Mark Thomas, banking analyst at U.S. stockbroker Keefe, Bruyette and Woods.

"British banks are well placed to go into the Chinese market because they have real strengths and experience in financial management as well as investment," agreed Linda Yueh, an expert on China at the London School of Economics.

Standard Chartered said in August that expansion in China was "a key priority".

But analysts noted that its stake in Bohai Bank was hardly a huge investment when compared with its overall business and the size of the Chinese banking industry as a whole.

"To be perfectly honest, it is absolutely irrelevant," said Thomas. "We're talking of a small investment for a multi-billion dollars bank. I would expect most banks with international operations to be looking at China."

So far, however, foreign banks have less than one percent of the Chinese market as a whole, Thomas noted.

The four large commercial Chinese banks -- Bank of China, China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) et Agricultural Bank of China -- have 56 percent of banking assets.

The Chinese banking sector's bad debt pile means that many foreign banks remain cautious, despite efforts by the International Monetary Fund to shore up the sector.

But there is no doubting the potential rewards, said Yueh.

"The Chinese banking sector is rich with opportunities due to the large savings of the population and growing consumption of the rising middle class.

"The recent liberalization of the sector, including allowing interest rates to price for risk, signals a real move to developing this sector in China since WTO accession in 2001."

But the Chinese market is competitive and the Wall Street giants have already established a presence.

U.S. financial services giant Citigroup made a foray into China's banking sector in 2003, buying five percent of Shanghai Pudong Development Bank while investment fund Newbridge Capital acquired 18 percent of Shenzhen Bank.

American Express was given the green light in June to issue credit cards in a venture with the Industrial and Commercial Bank of China.

And in the field of investment banking, Wall Street banks have taken an early lead, taking the lion's share of the market in 2003.