Investment bankers at global firms based in Asia often struggle to mask the note of derision in their responses when asked what they think of the competition posed by Chinese banks.
Invariably, they will talk about the stringent controls on Chinese capital markets, which hamper the prospects of even the most ambitious of Chinese firms. They will also point out problems surrounding corporate governance and transparency, and say the only area in which they truly compete is domestic Chinese business.
Some even question if Chinese firms want to compete on a global stage – suspecting, in the long term, the massive domestic market will prove enough to keep them occupied.
Signs are emerging that Chinese firms mean business beyond the borders of the People’s Republic.
The clearest indication yet of this unrealized ambition comes through Citic Securities’ long-mooted deal to buy CLSA from Crédit Agricole, which was finally signed towards the end of last month. The deal means the immediate expansion of Citic’s distribution network through which it can sell equity and raise capital for its Chinese clients in overseas markets.
Analysts say the price paid by Citic for CLSA was high – about 2.8 times CLSA’s book value for the initial 19.9 % stake. The market seemed to agree, as shares in Citic slumped on the deal’s announcement. However, given Citic has a cash stockpile of some $5 billion, an advantage it shares with many other Chinese companies, it is almost impossible to see how the deal will cause it any sort of long-term financial harm.
The sale by Crédit Agricole can also be seen as illustrative of another trend that is gathering steam – the retreat of European banks from Asian markets. This is being driven by a need to trim costs as the crisis in the eurozone shows no signs of abating.
RBS has sold the bulk of its Asia Pacific cash equities and associated investment banking business to CIMB of Malaysia. And ING is said to be selling large parts of its Asia business, valued at about $7 billion, to help pay for its bailout in 2008 by the Dutch government.
Another sign of China’s growing global appetite came last month as CNOOC, China’s leading offshore oil producer, agreed to buy Calgary-based oil group Nexen for $15.1 billion plus debt.
If it completes, the deal will be China’s largest overseas acquisition of a public company and underscores the zeal with which Chinese companies are snapping up foreign assets as the financial crisis continues to wreak havoc on businesses across the globe. If the deal receives regulatory approval, which is by no means a sure thing, it could lay the ground for a raft of companies to follow suit.
China’s influence on the global stage is only going to grow. Bankers at leading US and European banks in Asia should replace derision with respect.