Analysis | Ten years on, what are foreign banks getting from China’s financial Big Bang?

It’s more hype than profits, but hope springs eternal in the potential market size of the world’s most populous nation

Reading Time:5 minutes

A view of the skyline of Lujiazui, Shanghai’s financial district, from the city’s Bund. China’s government in 2007 allowed foreign banks to be incorporated in the country for the first time, fulfilling a liberalisation obligation under the World Trade Organisation. Photo: Reuters

Published: 12:02am, 29 Apr 2017Updated: 12:02am, 29 Apr 2017

When HSBC Holdings, Citi, Standard Chartered and the Bank of East Asia planned to open their mainland China subsidiaries on the same day in 2007, their objective could not have been more unanimous and clear.

The four were vying to become the “first” foreign banks to be incorporated locally, a status that would have given them a foot in the door into one of the world’s biggest consumer and retail banking markets underscored by an increasingly wealthy Chinese population.

But a decade later, retail banking profits from China remain elusive for the four and their foreign peers.

Securing the business to manage assets and the onshore wealth of China’s high-net worth and mass affluent individuals is no easier than 10 years ago, as local competitors have upped their game while technological disruption are constantly changing consumption patterns.

“Foreign banks contributed to China’s banking industry by bringing in capital, experience and expertise in corporate governance and risks controls when they first tapped the domestic market through investing in domestic banks and setting up their own operations,” said Chun Chang, executive dean and professor of finance at Shanghai Advanced Institute of Finance at the Shanghai Jiao Tong University. “Their own operations in China are not as successful as their lucrative investments in domestic banks and seemingly have fallen short of expectations.”

Foreign banks in Shanghai’s Lujiazui financial area. Photo: Xinhua

For Chinese consumers, the expectations from foreign banks to pressure local lenders into doing better have also fallen through.

“Foreign banks’ services are not as good as what I would have expected and what I have experienced in their early days of operations,” said Ada Xu, a Shanghai marketing professional who had banked with four foreign banks including DBS and HSBC. “Sometimes I also feel they are too rigid when compared with the easy, flexible and convenient financial services I can get from internet companies.”