APAC-BFSI-Outlook-2017

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8 Real Capital Analytics
Chinese banks expand in Asia
To some extent, the offshore expansion
of Chinese banks has been driven
by government policy. The central
government has historically maintained
a tight grip on cross-border capital
flows, keeping China’s capital account
largely closed. Outbound investment
from China was negligible until this
century. In 2000, the government
officially launched the “Go Global”
policy, under which Chinese companies
are encouraged to invest overseas, and
in 2001, China joined the World Trade
Organization (WTO), which deepened
the country’s integration into the global
economy. These events kicked off a
massive, ongoing boom in Chinese
direct outbound investment, which
expanded from US$2.7 billion in 2002
to US$102.9 billion in 2014.4 Chinese
banks are following their customers
overseas, providing low-interest
loans to fund the dramatic expansion
of Chinese companies into foreign
markets.
The overseas growth of China’s
banks has also been fuelled by the
government’s desire to internationalize
the yuan (or renminbi), making it a
truly global currency, starting in the
mid-2000s. By January 2015, the yuan
was used for some 25% of China’s
global trade settlements, and in late
2015 the International Monetary Fund
(IMF) agreed to add the yuan to its
reserve currency basket5, affirming
that the currency is “freely usable”
internationally6. The accelerating use of
the currency abroad has created fertile
soil for the expansion of Chinese banks
in cities where offshore yuan markets
have emerged, such as Hong Kong,
Singapore, London and New York.
Chinese banks have benefited from the
massive expansion of their assets in
the years following the GFC, and the
twin forces of currency liberalization
and outbound investment growth are
pushing them abroad. Bank of China
leads the way, with an estimated 23%
of its pre-tax profit and 30% of its
total assets (about RMB 4.5 trillion)
accounted for by operations outside
the mainland, according to Moody’s
data. China Construction Bank and
Industrial and Commercial Bank of
China (ICBC) are also actively boosting
their foreign presence, with purchases
of overseas financial institutions. The
chairman of ICBC has estimated that
18 Chinese banks have established 1,127
foreign-funded institutions overseas
in 51 countries and regions, with more
than US$1.2 trillion of total assets as of
the end of 2014.7
The growing profile of Chinese
banks overseas is reflected in their
increasing occupancy of office space
in Asian financial centers. In addition,
Chinese banks are also boosting their
investments in overseas real estate,
including office space for self-use.
Available transaction records8 show
that overseas commercial property
investment by mainland banks jumped
steeply in 2012, totaling US$492 million
for the year; the annual total in prior
years had never exceeded US$193
million. Annual investment continued
to climb in 2013 and, after a dip in
2014, reached a new height of US$600
million in 2015, greater than the total
investment in the six years from
2006-2011.
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