Private Banks and China now liberalizing - New opportunities?

Written by Diego Castillo || 06 Aug 2014

China is beginning to open its financial sector with the approval of three privately owned banks, extending the wave of financial reforms aimed at boosting China's changing economy.

This will open doors to new opportunities, but exactly which doors are being opened?

On Friday July 25th, The China Banking Regulatory Commission approved the creation of three new privately owned banks, which have been in a queue to get approval for at least six months. With China's financial liberalization policies, it hopes to increase competition in the banking sector and boost development and creation of SMEs.

However, the Chinese government is not the only party interested in the approval of these banks. Companies that will support these upcoming banks have several reasons to be eager about the approval as well. This is duly because the establishment of their respective banks will create opportunities such as diversification (i.e. expanding in other sectors), synergy with their existing business, a good profit margin (which although declining, is still profitable), financing for their own activities, and to improve their market capitalization as investors will likely show interest in companies that are involved in banking. New opportunities will also arise for existing SMEs in this area, as they will be able to borrow and raise capital to develop and expand within the area without having to recur to shadow financing.

If these reforms work in the way they are expected to, there will be much growth within this sector of the economy since 98% of the Chinese Enterprises are SMEs, and previously 90% of them were founded without loans. We should be seeing these changes by early next year when the three banks are finishing their preparations with a deadline of six months, as noted by the CBRC.

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