Open for Business: The incredible expansion of Chinese banks
In 2013, a Chinese bank came top in The Banker's Top 1000 World Banks ranking for the first time. The Industrial and Commercial Bank of China (ICBC), one of China's 'Big Four' state-owned commercial banks, has moved from third to first place on the back of a 15% increase in capital, surpassing JP Morgan Chase & Co and Bank of America.
ICBC's seemingly rapid ascension is not isolated, in 2012 the Chairman of the second largest Chinese bank, "China Construction Bank" (CCB) Wang Hongzhang announced they had 100 billion Renminbi (US$ 16 billion) in cash to make an acquisition or at least take a stake of around 30-50% in a leading European institution with targets in United Kingdom, Germany and France. In fact, the so called Chinese "Big 4" banks are all ranked in the top 10 largest by asset value (see Table 1) and looking to expand.
Source - Official company websites
We must remember, this success didn't happen overnight but is the result of an aggressive strategy of overseas expansion that started more than 10 years ago. In fact, Chinese banks completed a total of 38 overseas M&A deals between 2002 and 2011. By the end of 2010, the oversea assets of Chinese-funded banks had exceeded US$270 billion and the China Banking Regulation Commission reported that 16 Chinese banks now own more than 1,000 overseas companies in 40 countries.
Chinese banks have laid their strategy on the table: Their plan is to build global banking giants by acquiring institutions with an existing international presence, rather than focusing on their domestic market. According to a study published by HSBC, 4 in 5 international Chinese corporates plan to expand further overseas. And they have the financial muscle to achieve it; the four largest Chinese banks (ICBC, CCB, ABC and BoC) have all achieved double-digit growth in profits: ICBC announced that their 2012 net profit rose 15% to 239 billion RMB (US $38 billion), CCB profits were up 14% to 193 billion RMB (US$31 billion) compared to growth of 19% to 145 billion RMB (US$23 billion) for Agricultural Bank of China. By comparison, Bank of America announced a net income of US$19 billion and JPMorgan US$21 billion in the same period.
This article provides an introduction to the Chinese banking sector aiming at raising awareness of the growing power of Chinese banks in the global scene. In particular it addresses following topics:
- Who are the major Chinese players overseas?
- What are the reasons for China's "Going Global" strategy?
- What regions are Chinese Banks targeting in their expansion plans?
What can be expected in the upcoming years?
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