Anyone who has lived long enough has their own China banking story. Mine was when I first arrived many years ago. My landlord banked with Bank of China (BOC) and I banked with the Industrial Commercial Bank of China (ICBC). At that time (2004), personal bank to bank transfers weren’t possible without a tremendous amount of paperwork, so once per month I would have to directly pay my rent via withdrawal / deposit. As banks typically closed at around 5pm, this meant it was a weekend exercise and one not easily accomplished.
Frequently companies issue press releases talking about a new agreement or MOU with a Chinese financial institution or market player. As Chinese companies globalize and more foreign companies setup offices in China, announcements like these are becoming more common, it is worth taking a minute to reflect on what MOUs or agreements actually mean both inside and outside of China.
In recent years, with the development of information technology and the demand of innovation in the micropayment market, China’s commercial prepaid card industry has grown rapidly. By the end of 2009, the total funds of prepaid cards in circulation reached 1,093 billion Yuan, with 1.75 billion transaction volume and a stored value totaling nearly 40 billion Yuan, according to a report filed in July 2010 by China Union Loyalty Co Ltd, a Shanghai-based provider of prepaid cards.
On June 8th, China Union Pay (CUP), China’s bankcard association, released two non-card payment products – Union Pay Online Payment and Mobile Payment thus completing the setup of the company’s non-card online payment platform, built on Union Pay’s bankcard transaction settlement system and characterized by its open type, advanced technology, high efficiency and security.
Recently there seems to have been an increased focus on the presence of foreign banks in China and their domestic China businesses. There was an article in the WSJ last week that mentioned the number 86% which represents the increase in foreign banks' lending in China in 2010. A webinar from Celent talks about how JVs/partnerships are still the way to go in China for foreign banks.
Yesterday was the 7th Annual BFTF which was held at the Traders Hotel here in Singapore. The event featured around 20 international speakers, 8 sponsor/vendors and was attended by about 100 delegates. The event, although smaller than in previous years – and smaller than similar events, was excellent. I was expecting the conversations to be thought-provoking, but was genuinely impressed by some of the debates and discussions.
Trade Tech came through Shanghai this week. It's only in the third year that Trade Tech has come to China, but it's clear that interest is growing as evidenced by an increasing number of attendees and exhibitors. Although there are few conferences in China concerning electronic trading, Trade Tech has managed to become one of the top events for sell sides and financial technology providers in China largely based on the claim from the event organizers that it represents one of the largest gatherings of buy-sides in China.
China, for once, is relatively quiet – well in certain respects. Today, we’re nearly mid-way through the two week celebration of Chinese New Year as we move into the year of the rabbit. The streets for the past week have been somewhat quiet and offices were closed as millions of Chinese returned to their hometowns to celebrate the lunar calendar new year.
After over thirty years of opening up and economic reform, in 2010, China officially overtook Japan to become the world’s second largest economy, trailing only the United States. Undoubtedly, the global financial crisis that took hold in late 2008 has served as a turning point for China to rapidly transform itself into a global engine of growth.
As the world economy recovers from the deep hole of the financial crisis, institutions in Chinese financial markets, like their counterparts in the west, are looking for ways to improve their efficiency through technology. This drive for efficiency is bringing Cloud computing into the spot-light and the idea that computing will increasingly be delivered as a service, over the internet, from the vast warehouses of shared machines – a new way to meet the demand for efficiency improvement.
In recent years, China’s banking sector has gone through rapid changes, driven by deepening financial reforms, growing presence of foreign banks and quickly evolving customer demand. With intensified competition, there is a new wave of investment in core banking systems among Chinese banks, in a hope to sharpen their technology edge and stay ahead of the competition.
Without a doubt when we look back at the year in review for 2010, one of the key industry issues of the year will be that of consumer data protection. With numerous breaches at some of the world’s largest banks and credit card institutions, it’s clear that data privacy and protection is still an issue – and one that is back on the front page this week.
As commonly seen as the nearest equivalent to Paypal in the Chinese market, Alipay, a Chinese online payment processor affiliated with the Alibaba Group, has enjoyed enormous popularity amongst Chinese netizens since its launch in 2004. As of December 2009, Alipay was said to possess over 250 million registered users and to oversee 5 million transactions worth ￥1.2 billion on a daily basis.
Prior to joining the WTO, the knowledge and experience of bank staff in Chinese banks was not an issue. Most domestic banks were very inwardly focused on their core domestic business and staff had the capabilities to match. However, as more and more SOEs were either listed or entered into partnerships with foreign multi-nationals, the requirements of domestic companies changed and expanded. No longer was it a case of simply domestic business - China had gone global. The issue then became staff experience and capabilities and as most Chinese banks didn't have the experience in-house, so they looked west.
Beyond satisfying WTO requirements, one of the key rationales for allowing foreign multinational banks to buy into Chinese financial institutions was to leverage the investors’ experience to develop a more mature set of regulations and financial industry as a whole. With the slowdown going truly global, we are starting to see multi-national banks start to pull out of China; RBS and UBS have sold off stakes in their Chinese investments, it’s likely that many other banks will do the same in the coming months. This poses a big challenge for Chinese banks.
With both the Olympics and Para-Olympics now over and the vestiges of Olympic advertising slowly being removed from billboards around China, it is getting back to business as usual in China, or as usual as it could be. For awhile, the feeling was that the Chinese economy would come out of the Olympics, weather the credit crunch and continue on the path of the fantastic growth that China has experienced over the past 10 years. As the situation in the United States worsens, both as a result of the credit crisis and the worsening economic situation, that feeling is changing.
The government of the new Taiwanese President Ma Yingjeou has, over the past few weeks, taken a number of key steps towards financial services liberalization between Taiwan and the mainland that are pointing towards a more integrated financial sector. The two players have always been closely economically intertwined, but there have been many barriers in place that have prevented a more complete integration. Those barriers are now starting to come down.
Non-performing loans (NPLs) have been the monkey on the back of Chinese banks for years. Previous to 2001, NPL rates weren’t as big of a concern for the banks as they were all fully state-owned and competition was weak. China entering the WTO changed that. As the industry started to open up, competition increased and banks considered public listings. Cleaning up their low-quality balance sheets was one of the first steps on the road to IPO.
Taking a step away from financial services for a minute, I thought it fitting to give a view from China of what’s happening regarding China’s recent earthquake. In previous disasters like the SEA tsunami a few years ago or the recent typhoon in Myanmar, I've often found myself detached from the reality of the situation by geographical distance. Although once again I still am to a certain extent, as Shanghai is a distance from the epicenter of the quake, the quake and its aftermath have dominated life in China for the past week and a half.
2008 is turning out to be a another big year for the Shanghai stock market, not because of the bubble-like conditions or growth like what we saw in 2007, but for the changes in market regulations.
The Citic / Bear Stearns fall-out is one example of many where proposed or actual tie-ups in China have changed as of late. Another prominent one is Yahoo and their arrangement with Alibaba, the largest B2B website in China. In August 2005, Yahoo invested US$1B for a 39 percent stake in Alibaba, who then agreed to run the Chinese operations of Yahoo. Now with Microsoft on the hunt for Yahoo, Alibaba wants to buy out the Yahoo stake and is looking for financing to do so.
Without too much fanfare, Nokia and China Unionpay recently launched a near field communication (NFC) contactless payments trial in Shanghai allowing users to download a loyalty application over the air to their phones. It’s actually the 2nd trial of NFC in China. The first project was a ticketing and e-cash application loaded onto 100 phones in the coastal city of Xiamen which was also backed by Nokia.
Amongst all of the events happening in China in 2008, without a doubt, the most important item on the Chinese agenda this year is the Beijing Olympics. Seen by both domestic and international observers as a key indication of China’s development, the Chinese government has spared no expense in preparing for the games.
Year 4706, the year of the rat, begins on February 7th in China this year. With the celebration just under a month away, it’s tempting to use the time to procrastinate on making predictions on what will happen in China is 2008 as it’s technically not the new year here yet, but unfortunately, China doesn’t wait.
The Shanghai stock market continues to defy expectations -- up nearly 100% in 2007. Most of the commentary on the Shanghai market depicts the average Chinese investor as unknowledgeable and following the herd. However, a recent study that we’ve (kapronasia) just completed with Amber (www.amberinsights.com) shows that individual Shanghai A-share investors are actually much more market savvy than commonly thought.
According to a recent statistic published by China Union Pay, Chinese banks have issued more than 1.3 billion debit, credit and ‘quasi’-credit cards through the end of September. This means that, on average, every man, woman and child in China now carries a piece of plastic. Quite a staggering number and, at first glance, quite promising.
Two years ago in 2005, GE agreed to buy a 7% stake in Shenzhen Development Bank, which at the time was worth US$100M. However, the deal had been held up due due to disagreements amongst the shareholders, one of which was the private equity group TPG. Most of the disagreements centred around government requirements on share restructuring as the initial agreement would have significantly diluted TPG's stake in the bank. TPG eventually did agree to modified terms, but yesterday Shenzhen Bank terminated the agreement.
Not to miss the ‘invest in China’ boat, yesterday, Bear Stearns and Citic Securities announced a co-investment partnership agreement. If everything is approved by the regulators, which it likely will be, Bear, the darling of the CDO market, will invest US$1B in the Chinese brokerage, which will convert to a 2% stake over 6 years with the option to increase that to 7%. Conversely, Citic will invest the same in Bear, which will convert to 6% stake in Bear over 40 years, and will have the option to increase this stake to 9.9%. Most of the non-Chinese operations will likely be a co-branded operation and it’s yet unclear what the Chinese operation will look like.
For the past few weeks, most of the major news in China has centred on the Communist Party Congress. This is an pretty important event in China that happens once every 5 years and usually results in a number of far-reaching policy and people changes throughout the country and government.