China’s banking market has become increasingly crowded, what is Citi’s strategy to stay competitive?
Andrew Au: We also see the market as very competitive. We need lots of strength to compete and we believe we have that strength. When looking at the competition, there are only a handful of foreign players that compete with us, whereas the local banks are very competitive in the domestic market. But while we are looking at local banks’ competitiveness we are also looking at our own strengths, and we opt to compete in chosen areas.
We see competition in corporate banking in global markets; that’s why we have set up China desks in various markets and increase our mobility to match our customers’ overseas development. We have deep businesses in many different markets around the globe, which helps us to serve them well.
Henry Zhang: As a company grows bigger, its major concern is no longer how and where to borrow money, but how to access effective funding sources. While we can’t compete with domestic banks in lending large sums of renminbi to big SOEs [state-owned enterprises], we could guide them to a more meaningful and broader funding source than simply lending money to them. We brought Sinopec to the overseas bond market for the first time in May in a record-making deal, for example.
What progress have you made on the consumer side in China?
Au: Being the first global bank to receive approval to issue cards is a very significant event for us. China is probably the second-largest consumer banking market in the world. We have seen the trend that the Chinese individuals travel more and more internationally, and its companies also expand and travel more globally. Credit card issuance places very well in our overall strategy in China, as well as in the trends we are seeing in the country. The bank card business is our core business globally. We have started from scratch in our card business in Asia over the last 20 to 25 years and we have done very well.
We don't disclose the number of cards we plan to issue but it will be a meaningful launch. The target customers are our existing customers in China. We have different cards for different customer groups depending on their financial needs.
Serving Chinese SMEs has been one of Citi’s core businesses. What are the challenges and strategies in dealing with these customers?
Au: There are number of things that Chinese entrepreneurs haven’t yet understood. Chinese entrepreneurs, once they become successful, tend to shift away from their core businesses and turn to seemingly more profitable trades, such as property investment. We have been advising them for a long time to stick with their core business and do what they are good at. We have seen many businesses that didn’t succeed because they didn’t stick to their core businesses.
Secondly, they need to understand that their funding can come from different sources. Some of them look at banks as a solution to all funding problems.
However, there’s money to be made in the SME sector and there are good businesses; you just need to select the right customers.
The economic slowdown in China is taking a toll on credit demand. What is your outlook on the economy and what could bring it back on track?
Au: The economy slowed down quicker than expected and credit demand is not very strong from what we can see. The monetary solution won’t help; we need real demand to stimulate the economy. The slowdown was not necessarily caused by the tight liquidity or the monetary policy, but the weak demand. Look at the three engines of China’s economy: exports, domestic consumption and fixed asset investment. There’s not much China can do about the exports. The slower consumption is partly driven by the cultural factor and the government can’t control that, either. So the only thing the government can control is investment.
What are your goals in China?
Au: There are many things I want to achieve. However, investing in China is more like a journey. It’s a very big market — we could invest the rest of our lifetime here. We are now in 13 cities, but how many cities do we have in China? We try to strike a very good balance between investment and profitability.
