It’s only a matter of time, argues Dr Simon Taylor.
Market value and profits combine to place China’s banks among the world’s largest. Five head the list of the globally most profitable and it’s only a question of time before they begin to make an impact on the world stage.
That’s the view of Dr Simon Taylor, University Lecturer in Finance at Cambridge Judge Business School and an expert on the Chinese banking system.
“Five of the world’s most profitable banks are Chinese. If you are making four or five times as much each year as Goldman Sachs, are you just going to stay in China making money? I think the answer is ‘no’.”
According to Dr Taylor, the management of the banks want expansion but the government will have a view both on that and how any growth policy is pursued.
“I think it’s only a matter of time before they make an impact on the rest of the world. They’ve already made a number of small acquisitions but so far it’s been minimal and we’re really waiting to see what they’re going to do.”
He feels the Chinese banks have the potential to threaten other banks around the world, not least because they could simply buy them. Their sheer capacity to make acquisitions is also going to be a factor.
At the moment the watch-word is ‘caution’, as they enter markets in the wake of their state-owned corporate Chinese customers. These markets tend to be focused on economies rich in natural resources.
For Dr Taylor a more interesting question is around the Chinese banks’ approach if and when they start entering the retail banking industry of mature economies. Do they take the Santander approach – buy a British bank chain and become part of the market?
“I think they are cautious and currently focused on emerging markets. But they have potentially the resources and the ambition to enter the richer markets like the UK and US.”
He adds that Chinese banks all have their origin in a single megabank but created their own separate entities originally to meet specific requirements – Industrial and Commercial Bank of China, the Agricultural Bank of China and China Construction Bank.
“Those roots have gone as they have become very big and powerful but they are an essential part of the mechanism by which the government controls the economy, and are politically very important.”
On speculation that China’s banks may be poised for involvement in the eurozone crisis, Dr Taylor feels it is unlikely.
“It might have been a good idea back in February 2011 but right now there’s so much risk around the eurozone that I really don’t think any Chinese bank or government agency could come in until the dust has settled and it’s safe.”
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Visit Dr Simon Taylor’s faculty webpage
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China, market value