US banks have expressed concern over the potential impact of unresolved trade tensions on their plan to expand into the Chinese market, just as Beijing launches measures to open up the financial sector to foreign capital.
Beijing unveiled a raft of policies to further open the Chinese financial sector to foreign investment at the Bo’ao Forum earlier this year, allowing overseas banks to acquire majority stakes in domestic securities and fund management firms starting in April.
The move subsequently prompted a rush by leading international banks including JPMorgan Chase, Nomura and UBS to establish their own joint-venture securities firms in China.
Escalating trade tensions now threaten the ambitions of American banks to take advantage of the latest round of liberalisation measures to expand their presence in the Chinese market.
Several banking executives speaking to the Financial Times said that Sino-US trade tensions could put US financial institutions at a major disadvantage in the Chinese market, potentially prompting regulators to either delay or refuse regulatory permissions.
“If the trade war and tariffs escalate it will be interest to see how regulators allow liberalisation to tie in with the trade rhetoric,” said Carsten Stoehr, chief executive of Greater China at Credit Suisse.
“Given the tensions between the US and China, I have a question of whether the US banks will ever be that strong in China,” said Frédéric Oudéa, chief executive of Société Générale.
Foreign banks have struggled to achieve success in the Chinese market, with a report from KPMG indicating that their return on equity has been around 7% in recent years, or half the returns posted by China’s big state-owned lenders.
Foreign banks currently account for around 2% of Chinese banking market assets, while their share of investment banking fee revenue has fallen to under 30% from over 60% in 2006, when the push for opening of the financial sector first kicked off.
Securities trading is the mainstay of China-derived revenue for foreign banks, but this has come under pressure in recent years due to intensifying competition and tepid trading volumes.
While Bill Winters, chief executive of Standard Chartered, sees China’s capital markets assuming greater global importance as the renminbi eventually emerges as a reserve currency, he does not expect US banks to occupy the key access points.
“it’s not going to be an American bank in China…it’s going to be a Chinese bank in China.”
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