China Banking Research

Financial reform in China has been stalled for years. Foreign banks have never managed to hold more than about 2.4% of the market - and that was back in 2007. KPMG estimates their share of domestic assets actually fell to just 1.32% by the end of 2017. The renminbi internationalization process gives new meaning to the term "incremental." The exchange rate remains controlled and the capital account closed, just as they were a decade ago when Beijing began promoting the yuan's use globally.

Yet, there are signs of change. In September, Beijing granted Deutsche Bank and BNP Paribas the right to underwrite onshore debt in China, a first for foreign banks in the world's second largest economy. Later in the month, China removed limits on two institutional investment policies that allow foreigners to invest in Chinese financial markets: the QFII scheme (dollar-denominated) and RQFII (yuan-denominated). Those moves follow Beijing's decision to allow foreign banks to take majority stakes in local securities joint ventures.

In China's peer-to-peer lending sector, there's no such thing as too big to fail. Chinese authorities have since last year been cracking down on widespread impropriety in the once ascendant segment. Even the preeminent platforms have not escaped unscathed, leaving many observers wondering if we have reached P2P's twilight in China.

As the Sino-US trade war steadily escalates, tensions are inevitably spilling into the financial sector. While much press coverage has focused on the U.S. naming China a currency manipulator - something that hasn't happened since 1994 - there has not been any punitive action following the designation. The decision by Washington looks more like a pointed criticism of China's long-stalled financial reforms. Remember when it was common to hear bankers speculate that China's capital account would be freely convertible by 2020?

Those were the days. Regardless, monetary policy is actually less of a flashpoint in the trade war than compliance. The alleged involvement of three major Chinese banks in the financing of North Korea's nuclear weapons program - in violation of sanctions on the Hermit Kingdom - has the potential to entangle some of China's largest lenders in a new front of the trade war.

On July 20th, Chinese State Council announced 11 measures to advance the further opening-up of Chinese financial industry to the world. 8 of the 11 policies are related to bond, asset management, and currency brokerage.  The momentum of increasing foreign investment will not cease in the foreseeable future but be boosted with the newly released policies.

At a time where China’s financial institutions face increased competition from rising fintech companies, banks in China have been battling with fintechs for market share. The surge of fintech companies have facilitated the process of acquiring loans by providing consumers with an alternative to credit cards. They also do not exclude the unbanked population of the country which is a further competitive advantage for fintech companies. Therefore, banking segments efforts to outdo fintech has forced them to take riskier measures by expanding their lending platform to unsecured loans. Creating incentives for increased consumption has consequently resulted in a higher issuance of credit cards.

Imagine you are sick at midnight. You lay in the bed comfortably and consult your private doctor through your smart phone at home. They know your medical history perfectly and give you a personalized prescription online. You don’t need to go to the pharmacy. With a few clicks on an app you purchase drugs and they arrive at your doorstep within an hour and everything is seamless. This is not necessarily a futuristic movie, but rather - reality made possible by PingAn Good Doctor - the largest and artificial intelligence powered mobile medical platform in China.

Chinese peer-to-peer lending firms, reeling from the crackdown on P2P business at home, are starting to look for new business overseas. The fledgling India market is of great interest to several Chinese P2P companies, including 9F Group, CashBUS, and WeShare, according to reports in India's English-language media. The Chinese firms are attracted by India's huge size, steady economic growth and relative easy of market entry.

Foreign banks have a negligible presence in China, the world's largest consumer market. Research by KPMG has found that foreign banks hold about 1.3 % of China's domestic banking assets as of late 2017, compared to roughly 2.4% a decade earlier. Brokerages have not fared better. In 2015, UBS Securities and JPMorgan First Capital ranked 95th and 120th, respectively, among China's 125 brokerages by net income, according to the Securities Association of China.

In hope of a sustained stock market rally, U.S. President Donald Trump has been pushing for a rapid conclusion to the trade war he started with China almost nine months ago. Treasury Secretary Steven Mnuchin and National Economic Council Advisor Larry Kudlow, ever mindful of investors' concerns, reportedly have The Donald's ear. Trump's patience with the hardline approach of U.S. Trade Representative Robert Lighthizer may be wearing thin, people close to the White House say.

In the late 20th century, Hong Kong became the undisputed financial center of the Far East. Tokyo might have had a larger stock exchange, but the city never saw itself as a global financial hub. It was Hong Kong that attracted large global banks, PE firms and hedge funds to establish regional headquarters.

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