This past April, Chinese regulators started giving permission for foreign banks to incorporate locally. Incorporation means that the bank can do business in yuan and issue credit cards. Previously, foreign banks were only allowed to handle foreign-currency accounts, and were only able to offer credit cards through partnership deals with local partners.
Before, the foreign banks pretty much stayed in the coastal cities, going after the high-value, foreign-currency customers.
Today, those same banks have become much more appealing to China’s middle class consumers — and they have started moving to where those consumers are located. In other words, throughout China.
ABN Amro is now only one of foreign banks with branches in Chengdu and Chongqing, for example. HSBC, as today’s story by Mai Yi demonstrates, goes even further, with a branch in rural Zengdu county.
Citibank, HSBC, Standard Chartered, and Hong Kongâ€™s Bank of East Asia â€“ among others — are also competing head-to-head with domestic banks throughout China.
China’s retail market is an attractive target, with 30 trillion yuan (US$4 trillion) in household savings and surging demand for credit cards and other financial services as incomes rise.
“When you are able to do local currency business, the more presence you have, the better off you are,” one banking executive told us late last year. “The west is developing and it is developing fast or faster than the national average. Secondly, the government is encouraging western expansion and they are making branch licensing easier.”
Foreign banks were first allowed to open branches in western and northeastern China in late 2003, but the lack of ability to do local-currency business hindered expansion.
It all bodes well for the Chinese consumer, who has one of the world’s highest savings rates — and enjoys some of the world’s worst customer service when it comes to banking.
And not just Chinese consumers will benefit, though they will probably benefit the most, since there is more of them than just about anybody else.
Foreign businesses will benefit as well, since they will be able to get access to good banking services wherever they go throughout China
For example, it’s a nightmare for my company to transfer money — even within Shanghai. Too often, an employee has to carry stacks of cash between bank branches.
With international banks expanding in China, and bringing international service standards — and product offerings — local banks will have to shape up to stay competitive.
I’m looking forward to the day when I can transfer money electronically from my business account to my landlord, to my employees, and to my suppliers. Or, at the very least, write them checks.
In America, paper checks are so last-century. An inconvenience and a cost.
Here in China, paper checks, for some businesses at least, would be a big leap forward, and a cost savings over the current paper-bag-full-of-cash payment mechanisms.
Not to mention the security and risk management improvement.