It would probably be easier to try and find a needle in a haystack than to find a multinational company in China with a single banking relationship; at least the former may actually exist.
According to Peter Crawley, head of global corporates in the China transaction banking arm of Standard Chartered, the banking network in China is an oligopoly. “You have the big four local banks who probably have more than 15,000 branches, and then there are the joint stock banks, provincial and city banks. The large foreign banks with extensive networks come in after that and then you have about 190 to 200 other foreign banks,” said Crawley at the EuroFinance cash, treasury and risk management conference in Shanghai last month.
Crawley said Standard Chartered belongs to the large foreign bank group. However, he also highlights the fact that the largest foreign banks have a combined total of less than 200 outlets throughout China. Numbers alone suggest that international banks are in a less commanding position when compared to the reach and presence of the local Chinese banks. So why do corporations need both international and local banking relationships in China?
“The international banks have all the large MNCs as customers,” said Qi Zeng, the Beijing deputy general manager of the payment and cash management department of ICBC. Qi believes the large foreign MNC client base that the international banks bring into China to be their greatest strength. She said that if an international bank wants to expand its services to local clients, then it has to be done in collaboration with a local bank.
“For international banks, the biggest advantage is experience and knowledge of MNC business,” said Crawley. “Local banks know the culture in China since they have a long history and have an extensive network in the country.”
Companies must work with a bank that genuinely understands their needs. A bank that is reliable, that follows through with deals and provides a smooth flow of information is as desirable as a bank that can offer tailor-made and innovative solutions. “Local banks add value to the corporate market,” Crawley added.
It is therefore generally beneficial for a company to have relationships with both international and local banks. Qi suggests international banks and local banks can work together through host-to-host connections. This would make local bank balances visible through an e-banking portal provided by an international bank. However, no solution is perfect.
“Corporations work with several local banks and not all local banks have the host-to-host facility or are prepared to go down that route,” explained Crawley. “Also, not every bank has a Unicode translation for messages. For example not all foreign banks have Chinese character recognition. But a host-to-host set up is a positive step forward.”
Working with international and local banks at the same time is probably a necessary move for an MNC going into China, or for a Chinese firm with global aspirations for that matter. But only time will tell which of these relationships will dominate as international banks develop their presence in China and local banks move abroad.
