Mon, Nov 29, 2004 - Page 10 News List

British taking the lead in China race

BANKING Standard Charter and HSBC are using their long history in the region to help them grab bigger stakes as Beijing opens its market


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 (渤海銀行), 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 (交通銀行) -- the biggest single purchase by a foreign investor in China's banking sector, adding to an 8 percent holding it already owns in Bank of Shanghai (上海銀行).

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 Corp, 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 market, which is being slowly opened up following China's entry into the WTO in 2001.

"They have very long histories there and they're exploiting the opportunities after they come up," said Mark Thomas, banking analyst at US 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," Thomas said.

"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," he said.

So far, however, foreign banks have less than 1 percent of the Chinese market as a whole, Thomas noted.

The four large commercial Chi-nese banks -- Bank of China (中國銀行), China Construction Bank (中國建設銀行), Industrial and Com-mercial Bank of China (ICBC, 中國工商 銀行) and Agricultural Bank of China (中國農業銀行) -- 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 IMF to shore up the sector.

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

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

"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," she said.

But the Chinese market is competitive and several Wall Street giants have already established a pre-sence there.

Citigroup made a foray into China's banking sector last year, buying 5 percent of Shanghai Pudong Development Bank (上海浦東發展銀行) while investment fund Newbridge Capital acquired 18 percent of Shenzhen Development Bank (深圳發展銀行).

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