Opportunities for Foreign Banks in China

Written by || October 24 2013

In a heavily regulated market like China, it’s easy to point out what can’t be done, but sometimes difficult to identify what can be. Many banks look at the market and see it as being too difficult or as you might say in Chinese ‘mafan’ or troublesome. It is easy to look at any industry in China being like this, but what’s critical in the market is to find a unique opportunity and take advantage of it. For western banks, that could be the slow but steady internationalization of the RMB.

One of the principle opportunities for foreign banks in China, especially the large global players, is the growing demand for RMB related trade finance. Foreign banks will have opportunities to provide RMB cross-border trade settlement services, support Chinese investors in outbound investment and provide financial support for foreign corporates doing business either in or to and from China.

The global banks of course realize this. As Singapore started to launch the RMB clearing business, foreign banks such as DBS, HSBC, and Standard Chartered decided to issue RMB bonds, and Deutsche Bank completed the first CNY and SGD spot transaction in Singapore and quotes spot transactions for CNY to HKD, SGD, KRW, INR, and MYR in Singapore. As one of the primary Singapore RMB participating banks, Standard Charted launched a total of 2.5 billion yuan cross-border RMB bonds with the assistance of the Singapore arm of ICBC.

In China, Qianhai is a new financial area in the middle of Shenzhen, Guangzhou, and Hong Kong. One of the missions for Qianhai is to facilitate RMB internationalization. Recently, many Hong Kong banks such as Hang Seng Bank and Bank of East Asia, and domestic banks such as CITIC Bank and China Merchant Bank have applied to establish branches in the new financial area, Qianhai, to test out the new opportunities brought by RMB internationalization.

In the beginning of 2013, Bank of East Asia and other Hong Kong banks started to provide cross-border RMB loan in Qianhai. As Hong Kong is becoming a more mature RMB cross-border business center, high demand on RMB loan and “dim sum bond” from Hong Kong enterprises facilitate RMB business in Hong Kong banks.

So although the foreign banks are definitely limited in their dealings directly in mainland China, the increasing global presence of the RMB offers new and unique opportunities for international banks to leverage their global presence and offer unique RMB related products and services this can offer unique opportunities in what could, at first glance, seem to be an opportunity-less market.