China aims to have its banking system as strong and viable as possible by the time full foreign competition enters the fray in 2006. As a first line of defense, however, China has encouraged joint ventures between local players and foreigners to capture technology, skill and capital transfers. Foreigners are limited to owning stakes of 15 per cent in city commercial and stockholding banks, although this limit is currently under review and may be adjusted to 24.9 per cent.
Links with domestic players in China make obvious commercial sense for the right deal, given their two key competitive advantages - their local knowledge and their huge bank branch networks, with existing strong brand recognition, while China has allowed foreign banking entrants some access to its markets on their own, the roadblocks are still extensive and costly. As a result, the 53 foreign licensed banks control only 2 percent of China's domestic loan portfolios.
Three of Australia's listed banks are tackling three entirely different business models in their bid for profits from mainland China, each with a local partner.
Macquarie Bank, in partnership with former Australian Prime Minister Paul Keating, announced a joint venture last March with China Construction Bank ("CCB") to provide mortgage pre-settlement and title registration services to Shanghai's residential property market officially took off in China, following an announcement by Premier Zhu Rongji in July 1998, stipulating that state-owned enterprises were no longer required to provide accommodation for their employees.
Rather than compete for traditional loan and deposit business, Macquarie has cleverly focused on a niche where the investment bank believes it can leverage its traditional skill base to add value.
Meanwhile, the Commonwealth Bank of Australia's funds management arm, First State investments, announced in June, 2003 a joint venture deal with Shenzhen-based broker, Hantung Securities, together with China Southern Airlines Group and Nanjing YPC Refining and Chemical Company, to launch a domestic investment fund, subject to the approval of China Securities Regulation Commission ("CSRC").
The funds management sector has only recently opened to foreign joint ventures, with ING the first to successfully launch a RMB 4.5 bln (USD 547 mln) retail open-ended fund with China Merchant Bank, headed by Melbourne boy, Chris Ryan.
Meanwhile ANZ Bank is expanding its presence in the greater Asian region, using the traditional banking route. Its Asian investments stand at 2.5 per cent of the bank's equity with plans to take these to 10 percent.
After 17 years in mainland China, ANZ has two banking branch licenses - one in Beijing; one in Shanghai - each costing US$12 million in capital to open. Both have been rewarded with RMB licenses, after meeting China's profitability benchmarks, one of 28 foreign banks to do so. ANZ is also one of nine foreigners with a foreign currency license.
Links with domestic players make obvious commercial sense for the right deal, given their two key competitive advantages - their local knowledge and their huge bank branch networks, with existing strong brand recognition.
Following several years of dating locals, ANZ finally signed a cooperative alliance with the 300-branch Shanghai Rural Credit Cooperative on April 1, primarily a home mortgage lender, with only limited exposure to the big end of town. The aim is to leverage its local partner's franchise network with ANZ's risk management and superior technology capabilities.
ANZ's deal could prove cleverly placed, given Shanghai's 25 percent contribution to the national GDP, while its outlying regional population is set to grow from 17 million to around 60 million over the next 10 years, due to forced rural relocations.
The three Australian deals show that China's banking story can have two sides, with the banking scandals and non-performing loans the darker underbelly, contained primarily within China's four banking heavyweights.
