Chinese corporates bestride the world stage. They dominate the renewables space: electric vehicles made by the likes of BYD, Chery and Geely are in most cities. Fast-fashion pioneer Shein, founded in Nanjing and valued at more than $60 billion, is awaiting approval for a stock listing in London or New York.
But where are its banks? Given the country’s super-accelerated rise from economic backwater to military-industrial superpower, it’s an anomaly with no obvious underlying logic, or indeed solution.
This is curious. In recent centuries, most rising nations fostered a group of outwardly mobile financial institutions that marched in lockstep with local business interests, providing everything from working capital to foreign exchange.
Many of the biggest banking names established a century ago or older are still with us today. HSBC, formed in Hong Kong in 1865, and Standard Chartered – which opened its first branches seven years earlier in Mumbai, Kolkata and Shanghai – are living legacies of the British Empire.
The forerunner of BNP Paribas, CNEP, set up shop in 1860 in China and India, to finance cotton imports into France. Citi, arguably the US’s most recognisable and influential financial operator, started life in 1812 as the City Bank of New York. It has been financing the outward expansion of US corporates pretty much ever since.
Passive and unambitious
To say that Beijing’s banks are invisible on the world stage is misleading. Most big names, such as ICBC and Bank of China, have branches in many capital cities. But they are in the main passive, unambitious businesses, there to provide a narrow set of retail, corporate and wealth services to locally run Chinese firms and a sprinkling of tourists.
Ambition has been fleeting and fragmented. ICBC bought a 20% stake in South Africa’s Standard Bank in 2007 for $5.6 billion, before pushing into Latin America and taking control of a London-based global markets business. A drive by state banks to build outward-facing investment banks in the early 2010s was soon undermined by a domestic stock-market crash and resentment at the elevated salaries paid to foreign bankers.
In early to mid 2000s, it seemed for all the world that cashed-up mainland lenders would move closer to the centre of the stage. Perhaps one would snap up a troubled European lender or push harder and faster into key markets in the likes of Africa, Latin America and southeast Asia. Yet it didn’t happen.
It is far too soon to write off Asia’s largest economy, but Beijing is under immense pressure on so many fronts
Will it? Can it? For now, it seems unlikely. China is turning politically inward. It is far too soon to write off Asia’s largest economy, but Beijing is under immense pressure on so many fronts. Its economy is slowing; its demographic outlook is woeful; foreign investors are wary of committing fresh capital to the market; and its property sector is in the mother of all slumps.
Last week, Bridgewater Associates founder Ray Dalio, a long-time China investor, said the market faced an extended “lost decade” akin to Japan’s unless the debt-burdened economy could deleverage while easing monetary policy, a trick he admitted would be “very difficult and politically dangerous to do”, given inevitable accompanying shifts in wealth distribution.
Beijing certainly needs to do something to inspire hope. The chief executive of an international bank, speaking recently to Euromoney, expressed his surprise at China’s weak Covid rebound. “I thought it would be much stronger,” he admitted. “The debt overhang is a problem. But far more worrying is the collapse in consumer and foreign-investor confidence.”
Logical and incongruous
Against this backdrop, it’s hard to see a Chinese lender of any size making an impact internationally. They are creatures of the state, answerable to the ruling Party. From propping up developers to funding troubled local-government financing vehicles, they have more than enough to do at home.
This is at the same time logical and incongruous. It has never been more important for China’s banks to be visible on the world stage. Mainland corporates are more active in the US and Germany, Australia and Brazil, than ever before. This is due to their own ambitions, but also explained by shifting supply chains, as firms move production out of China to avoid rising costs and US tariffs.
Foreign lenders, as Euromoney reported in October, can see with perfect and profitable clarity the value of serving ambitious Chinese firms as they barrel their way into new markets. Even if China’s banks had the same perspicacity, there’s little they could do about it. At time when they should be spreading their wings, they are earthbound. It’s hard to see this changing.
