4月29日，《南华早报》刊发上海交通大学上海高级金融学院执行院长、金融学教授张春的采访报道。张春教授认为，外资银行最初凭借对国内银行的投资以及自身开展的业务打入国内市场时，带来了资本、企业管理和风险控制方面的经验和专业知识，为中国银行业的发展作出了贡献。外资银行对国内银行的投资带来了丰厚利润，相比之下，它们自己在中国开展的业务却没有那么成功，表现似乎没有达到预期。

Ten years on, what are foreign banks getting from China’s financial Big Bang?

When HSBC Holdings, Citi, Standard Chartered and the Bank of East Asia planned to open their mainland China subsidiaries on the same day in 2007, their objective could not have been more unanimous and clear.

The four were vying to become the “first” foreign banks to be incorporated locally, a status that would have given them a foot in the door into one of the world’s biggest consumer and retail banking markets underscored by an increasingly wealthy Chinese population.

But a decade later, retail banking profits from China remain elusive for the four and their foreign peers.
Securing the business to manage assets and the onshore wealth of China’s high-net worth and mass affluent individuals is no easier than 10 years ago, as local competitors have upped their game while technological disruption are constantly changing consumption patterns.

“Foreign banks contributed to China’s banking industry by bringing in capital, experience and expertise in corporate governance and risks controls when they first tapped the domestic market through investing in domestic banks and setting up their own operations,” said Chun Chang, executive dean and professor of finance at Shanghai Advanced Institute of Finance at the Shanghai Jiao Tong University. “Their own operations in China are not as successful as their lucrative investments in domestic banks and seemingly have fallen short of expectations.”

For Chinese consumers, the expectations from foreign banks to pressure local lenders into doing better have also fallen through.

“Foreign banks’ services are not as good as what I would have expected and what I have experienced in their early days of operations,” said Ada Xu, a Shanghai marketing professional who had banked with four foreign banks including DBS and HSBC. “Sometimes I also feel they are too rigid when compared with the easy, flexible and convenient financial services I can get from internet companies.”

Xu will use foreign lenders for cross-border needs, but said she’s “happy to change to a domestic bank if a similar, comparable service is available there.”

Even in the early days of China’s banking reforms during the 1990s, analysts were quick to point out that one of the biggest challenges for foreign banks is pitting against their local rivals’ extensive network of branches and outlets.

Stringent Chinese regulations have kept foreign players on a tight leash. By limiting the stake that they can own in domestic banks, regulators have ruled out a route for expansion and forced foreign banks to build their networks from scratch.

The untimely outbreak of the 2008 global financial crisis did not help either. The banks had to shift their focus from expansion to downsizing and rebuilding their balance sheets. It also exposed the darker side of operations and harmed the banks’ reputation in China.

Nonetheless, the “big four” of the foreign banks - HSBC, Citi, Standard Chartered and Bank of East Asia (BEA) - led the first wave of local incorporation of foreign banks on April 2, 2007. The status granted the banks full access to yuan-denominated services and businesses onshore.

By the end of 2016, 39 foreign banks have established subsidiaries on the mainland, according to China Banking Regulatory Commission (CBRC) data.

Twenty one of the biggest of them are headquartered in Shanghai. Their yuan services accounted for 70 per cent of their assets, loans and deposits. The profile of their loans have shifted over a decade to Chinese companies, away from multinationals.

Foreign banks have also expanded their network and assets but the numbers are still a drop in the ocean, against the overall total for the country.

Chang of the Shanghai Advanced Institute of Finance pointed out that China’s capital controls also prevented banks from being able to fully exploit their expertise in cross-border services when serving high net worth individuals.

Coupled with the complexity and difficulty of operating in China against uncertain economic conditions, achieving profitability is increasingly an uphill struggle.

Look no further than HSBC and BEA, which both reported losses in their China retail banking business last year.
Yet, the banks are undaunted and stressed that China was a long-term play, even if it means the necessary investments in expanding products and customer reach will crimp earnings and translate into short-term losses.

“The strategy is really for personal banking [business] to be focused in the big cities,” said BEA’s deputy chief executive Brian Li Man-bun, who is pinning his hopes on partnerships with technology companies to strengthen the bank’s digital offering.

At Citibank China, the bank is revising its strategy to focus on building its digital offerings and resources to grow its retail banking business that has yet to generate any profit.

Analysts believe that to grow onshore, foreign banks have to sharpen their differentiation from Chinese banks.

“They have to find their niche in China among a certain group of clients, a geographic region or an industry to stand out, and offer speciality services in such a huge market in China,” said Joe Ngai, senior partner and managing partner of McKinsey Greater China office.

Though easier said than done, foreign banks have an edge in areas including cross-border business, trade finance, foreign exchange and derivatives trading and cash management that Chinese regulators recognise.

Even in the pain spot of retail banking, they have been instrumental in elevating the standards of service and nurturing talents over the years.

“Foreign banks have brought in abundant products, mature practices and advance risks control management, and help improve service capabilities of the industry in Shanghai, as the city emerges to become a global financial centre,” the Shanghai branch of the CBRC said this month .

Foreign banks are also leading in innovation and cross-border settling services in the Shanghai Free Trade Zone, in areas such as cross-border syndicated loans set up by overseas financial institutions, consulting services for depositary receipts of Chinese companies in overseas markets.

Until now, Beijing’s gradual loosening of control on foreign banks have allowed Chinese banks to grow at home, and to a modest extent, in the region.

It is hard to say when regulations that could foster foreign banks’ retail business will come into play.

“I won’t be surprised if foreign banks’ market share keeps dropping in China,” said Jimmy Leung, China financial services leader at PricewaterhouseCoopers. “However, being small players doesn’t necessarily mean being marginalised.”

Whatever the extent that they have fallen behind domestic banks in the retail sector, foreign banks can make up for in areas that play to their strengths. Banks say their earnings from Chinese clients outside the mainland have gained traction, even as prospects onshore remain uncertain.

To be sure, Beijing has given its support for foreign banks to cash in from assisting Chinese companies going abroad.

The CBRC said in March that the mainland operations of foreign banks can cooperate with their parent overseas and allocate profits in assisting Chinese companies expand globally through overseas bond sales, listings, mergers and acquisitions, and other financing activities.

“For foreign banks operating in China, the ongoing market entry liberalisation has spurred new energy and opportunities for continuous development,” said Christine Lam Yuk-wah, chief executive officer of Citigroup China.
Julia Wu, president of JPMorgan Chase Bank (China) Co and head of China global corporate banking for the US bank, described Beijing’s latest measure as “encouraging.”

The US bank is also rebalancing its client mix in the mainland, with the aim to engage more state-owned enterprises, private businesses to capitalise on the current outbound investment trend.

“Foreign banks have entered a new stage of growth in China,” the CBRC said, noting that the banks’ shift in their priorities from serving multinationals to Chinese companies with global ambition.