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By the end of last year, 74 foreign
banks had set up branches in China, and another
186 had established representative offices there.
Now with the opening up of the market, there is
a huge rush among them to compete for the nation’s
USD 2.2 trillion in household deposits. A survey
by PricewaterhouseCoopers shows that overseas banks
expect to double their total workforce in China
by 2010 to almost 36,000. Citibank plans to double
its number of outlets in China this year, bringing
the total to 30 while HSBC will add 35 branches,
bringing its total to 60.
In the coming
months it will be interesting to see how the market
develops - while Chinese banks have a huge asset
base and large branch networks, the foreign banks
have good systems, efficient processes and a customer
focused outlook.
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It is important to note however,
that there are still some areas of concern within
the banking industry. Governmental control is still
very much present even though banks have achieved
a certain level of autonomy. Often described as
“the Big Four”, the four state-owned
commercial banks - Bank of China, China Construction
Bank, the Industrial and Commercial Bank of China,
and the Agricultural Bank of China - hold a dominant
market share in
China’s banking sector, accounting
for over 50 percent of the sector’s total
assets. Twelve jointstock commercial banks, including
the Bank of Communications, account for 16.2 percent,
city commercial banks occupy 5.9 percent and the
remaining 26.6 percent are covered by other financial
institutions. The most obvious problem that plagues
China’s banks is that of the huge amount of
non-performing loans
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(NPLs) on their books. Until
recently, banks in China traditionally met government
policy demands by financing the operations of
the country’s state-owned enterprises
(SOEs), regardless of their profitability or
risk. Exposure to poor-performing SOEs has had
a major impact on domestic banks overall performance.
Leading international consultants McKinsey,
state that many Chinese banks lack the commercial
skills or the mind-set to price loans appropriately
and therefore lend too much money to underproductive
stateowned enterprises. Few banks have mechanisms
in place to prevent bad loans from accruing.
Moreover, Chinese companies get loans at abnormally
low rates, which encourage overcapacity and
inefficient investments in many sectors. All
told, McKinsey estimates that the inefficiencies
in China’s banking system cost the country
USD 25 billion
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