Foreign banks: with the change of the times, play the role of "gas station" and "seat belt" | foresee 2022

Looking back at the development in China for many years, some foreign bank practitioners told the "International Finance News" reporter that from the perspective of the industry itself, the development over the years has basically maintained a relatively stable growth rate, and there is output on the basis of input, and then further input, thus forming a virtuous circle.

On the other hand, although the proportion of foreign banks' assets has declined, this figure is relative, and the overall size of the banking industry is also growing.

The reporter learned from the interview that most foreign banks are still full of optimism and expectations for the future prospects, believing that the continuous opening of China's financial market can bring substantial development opportunities and enhance the competitiveness of relevant institutions in the local market.

So, looking forward to 2022, what business opportunities are foreign bank practitioners optimistic about? What preparations will be made?

Continue to be optimistic about the Chinese market

Will foreign banks remain optimistic about the Chinese market in the future? For this question, Liang Zhiwen, CEO of JPMorgan Chase China, gave a positive answer in an interview with the International Finance News reporter.

First of all, from the current macro environment, China's epidemic prevention and control work has been done well, the economy has rapidly entered recovery, and the macroeconomic and financial market performance has shown strong resilience.

In the medium and long term, foreign investors are generally optimistic about China's economic growth, and they are also looking forward to new opportunities brought by China's financial opening up and transition to a low-carbon economy. All these have provided a good macro environment for foreign banks to develop in China.

In addition, from the perspective of market development, the government and supervision have vigorously promoted the construction of capital markets, requiring the banking industry to gradually change the traditional scale growth business model. "I believe that these trends are conducive to foreign financial institutions to play a refined, professional product service and risk management and control capabilities." Liang Zhiwen said.

Finally, the advantage of foreign banks lies in relying on a strong global network to play a "bridge" role in helping Chinese enterprises "go global" and overseas institutions and enterprises "come in".

The reporter learned that in recent years, China is still one of the important destinations to attract investment from multinational companies. According to a report released by the OECD in May 2021, China surpassed the United States for the first time in 2020 to become the world's largest destination for FDI. Foreign-funded enterprises investing and operating in China are the basic disks of foreign banks operating customers in China.

In addition, the pace of internationalization of Chinese enterprises has accelerated. The head of Chinese-funded enterprises continues to grow bigger and stronger, the ability to internationalize is enhanced, and the way of internationalization is also diversified. Most of these Chinese-funded enterprises need to rely on the overseas markets of foreign banks and cross-border service capabilities to develop overseas. Foreign banks that already have a certain business volume and customer accumulation in China can benefit from the continued "going out" of Chinese-funded enterprises.

"At the same time, foreign investors are still interested in the Chinese market. The attractiveness of RMB assets to foreign investors is increasing. Liang Zhiwen told reporters that the facilitation measures to enter the market have also paved the way for the Chinese market to be included in the global index. The increase of investment by foreign institutional investors in the Chinese market will be conducive to the QFII (Qualified Foreign Institutional Investor) custody business and other securities service business of foreign banks, and will help foreign banks to play a role as a bridge and channel.

The advantage of "bridge" is very obvious

Liang Zhiwen said that most foreign banks are still optimistic and looking forward to the future prospects, believing that the continuous opening up of China's financial market can bring substantial development opportunities and enhance the competitiveness of relevant institutions in the local market.

Standard Chartered China told reporters that China is one of the most important strategic markets for Standard Chartered Group and the largest contributor to the Group's network revenue. In the future, we will continue to give full play to the advantages of our unique international network and business expertise to provide customers with quality products and services.

In addition, we will continue to grasp the huge opportunities brought by China's financial opening up in the international and domestic markets, including the Belt and Road Initiative, the Greater Bay Area Plan, the internationalization of the RENMINBI, the opening of the bond market, cross-border trade, green and sustainable finance, etc.

It can be said that in the process of the internationalization of Chinese enterprises, financial services play an important role and are a key component of the "going out" of Chinese enterprises. According to relevant people, the "bridge" advantage of foreign-funded enterprises connecting different markets and market participants is very obvious.

Specifically, initially, the main financial service needs of Chinese enterprises "going global" were overseas financing and trade settlement. With the rapid development of China's economy, Chinese enterprises continue to open up the international market, cooperation with the outside world is no longer limited to trade, and the scale of foreign investment continues to increase.

"This requires financial institutions to provide international, all-round and diversified financial services, build financial bridges at home and abroad, and provide strong financial support for Chinese enterprises through global networks and platforms." The person pointed out.

Liang Zhiwen also told reporters that taking the internationalization process of China's large and medium-sized private enterprises as an example, in the past, these enterprises often set up trading companies in offshore trading centers such as Hong Kong or Singapore to facilitate exports. With the continuous accumulation of technology, channels, management and other aspects, the pace of internationalization of enterprises is also accelerating, exploring epitaxial business expansion. More and more companies have launched considerable of-large-scale of foreign direct investment, such as setting up local factories or direct mergers and acquisitions.

"For Chinese companies that have just entered a specific overseas market, they may face many challenges such as a large market, a complex regulatory environment, and an inconsistent local legal system." Liang Zhiwen pointed out that in the case of JPMorgan Chase, this is precisely the area that can provide value-added and differentiated services, helping these companies to familiarize themselves with the local environment and steadily enter the local market.

Expand your business space

The reporter learned that the support of financial institutions for the real economy can be reflected in many dimensions. In the process of helping enterprises go global, financial services can also play the role of "seat belts" in addition to being "gas stations".

Liang Zhiwen pointed out that in addition to traditional working capital loans, foreign banks can also provide customized trade financing solutions, multi-currency foreign exchange hedging solutions, the best market experience sharing, globally linked treasury management solutions and a full range of investment banking services, etc., helping Chinese enterprises to expand their business globally while also playing a "family" role for them.

In fact, with the further advancement of corporate globalization, corporate treasury management often needs to undergo a transformation of concept and practice: from supporting financing for overseas business, investment and mergers and acquisitions, to achieving effective operation and risk management in the local market, and establishing a supporting treasury system – these require strong support from reliable financial institution partners.

The reporter learned from the interview that in terms of cross-border linkage, foreign banks can also cooperate with Chinese banks, with the help of the advantages of Chinese banks in deposits, customers, networks, etc., to expand some business space that can be released in practical operations, such as helping Chinese enterprises go global.

At this stage, based on the advantages of Chinese and foreign banks, such cooperation is also increasing.

Some banking observers told reporters that from the perspective of scale, the growth rate of foreign banks in the past period of time was lower than the average growth rate of the mainland banking industry, resulting in a decline in market share, but this figure is relative, and the overall scale of the banking industry is becoming larger at the same time.

From the perspective of foreign banks themselves, the development over the years has basically maintained a relatively stable growth rate, with output on the basis of input, and then further input, thus forming a virtuous circle.

The person also told reporters that foreign banks are not completely indifferent to market share, specifically, the efforts made in the expansion of related businesses have also been seen little by little. It is worth mentioning that in addition to the scale of assets, the indicator of return on assets is also worth paying attention to.

"Judging from the situation last year, the personal business of foreign banks has also gained a certain amount of growth, not only achieving breakeven, but also having considerable profits." The person pointed out that in the long run, the relevant business is more from offline or build an online platform is also a highlight worthy of attention.

Pay attention to changes in the macro environment

In the face of the ever-changing market environment, to some extent, banks need to provide more diversified product portfolios and comprehensive services based on the life cycle and operational characteristics of enterprises, and comprehensively support small and medium-sized enterprises to integrate into the "double cycle" and move towards a new stage of high-quality development.

Standard Chartered Bank said that supporting the development of small and medium-sized enterprises has always been its strategic business focus. Standard Chartered China is actively committed to accompanying the growth of small and medium-sized enterprises and capturing regional development trends, including the integration of the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, the integration of Chengdu and Chongqing, and the Beijing-Tianjin-Hebei synergy.

Looking forward to 2022, Wang Dan, chief economist of Hang Seng China, pointed out that after the epidemic, the global dependence on China's industrial chain has increased. Due to the repetitive nature of the epidemic, Chinese exports are expected to remain strong in 2022. Emerging market countries except China and most developing countries are not well controlled by the epidemic, and at the same time, they are facing pressure from debt, finance, currency and other aspects, and it will take at least 1-2 years to rebuild the industrial chain.

"If the Fed does raise interest rates 2-3 times in 2022 as the market expects, it will likely drag many countries into debt crises, thus further affecting the reconstruction of the industrial chain." Developed countries such as Europe and the United States are interested in localizing some manufacturing industries, but it is difficult to promote them before the global epidemic subsides. Wang Dan further pointed out that China is still a global economic stabilizer, ensuring the supply of a large number of industrial intermediates and consumer goods.

On January 1, 2022, the Regional Comprehensive Economic Partnership (RCEP) officially entered into force, and six ASEAN member countries, including Brunei, Cambodia, Laos, Singapore, Thailand and Vietnam, and four non-ASEAN member countries, including China, Japan, New Zealand and Australia, officially began to implement the agreement. South Korea will formally join on February 1, and Indonesia, Malaysia, the Philippines and Myanmar will take effect after completing the domestic ratification process.

"The official launch of the RCEP in 2022 strengthens China's position as an Asian manufacturing hub, so trade between China and ASEAN countries is expected to reach new highs." Wang Dan further pointed out that countries around the world are launching infrastructure investment plans to boost their economies, and China, as a major exporter of machinery, labor protection supplies and industrial intermediates, will benefit from global fiscal expansion.

On the other hand, Wang Dan believes that from the domestic situation, infrastructure investment will hardly grow in 2021, and it is expected that the infrastructure cycle will not be restarted in 2022, and moderately advanced infrastructure projects will mainly focus on carbon emission reduction and public facilities closely related to the quality of life of the people. It is difficult for large projects such as industrial parks and transportation to be intensively launched.

"In the past, large-scale infrastructure projects did stimulate economic growth, but the funds supporting such projects took up a lot of bank loans, pushed up real interest rates, and squeezed out capital that could have been lent to the real economy." This runs counter to the spirit of the central government's support for the real economy. Wang Dan further pointed out.

Adapt to change and be prepared

Overall, in the process of national economic restructuring and upgrading, the areas in which the banking industry excels will also change. In this case, the relevant adjustments are also accelerating.

Judging from the situation in 2021, under the background of the continued expansion of the opening up of the financial industry, the new development pattern with the domestic cycle as the main body and the domestic and international dual cycles promoting each other has been accelerated, and at the same time, affected by the impact of the epidemic, the proportion of domestic trade in the share of foreign banking business has also increased. Specifically, it is reflected in supporting local enterprises and supporting their export business.

A person with many years of experience in the market department of foreign banks told the International Finance News that there is no opportunity without change. If you look to the future from the perspective of a practitioner, you should prepare yourself from a more optimistic aspect, but do not simply be optimistic, you must do a good understanding of new changes and opportunities, as well as a comparative weight of risk analysis, in order to make the best preparation for your own department, products and the entire organization.

Combined with relevant measures, the state hopes to further invest relevant funds, capabilities and resources in some areas that are more beneficial to its own long-term development and the people. While it may be some time before the correlation effects are more clearly seen, and the market faces some uncertainty in the short term, the next few months of this year also need to pay more attention to the relevant changes in the face of this trend becoming clearer.

Megatrends have an impact on every practitioner, and the key is to have a correct judgment and relevant deployments to deal with them. From the perspective of the company, it has been prepared, based on the long-term optimism about the business in the Chinese market, there are also relatively large expectations for related specific businesses, such as the return of enterprises to china to develop listing and the development of the capital market.

On the other hand, the reporter learned that with the continuous expansion of business scale, the talent demand of foreign banks mainly presents two characteristics: one is the core financial talents who are familiar with international practices and have local experience; the other is the compound talents who understand financial technology.

The above-mentioned industry insiders also admitted to reporters that from the perspective of operating thresholds, risk control grasps and corporate culture, as a foreign-funded institution, it is also very important to find suitable talents. To some extent, relevant talents still need to be further explored and cultivated. From this stage, the key is to find potential people and give enough training and development space, so as to cultivate comprehensive amphibious talents.

This article originated from the International Finance News