AT the Citibank branch in Pudong, Shanghai, a graceful woman, in her early 30s, comes into the building. She follows Mr. Xiao, an employee with Citibank, through the golden porch and up two flights of spiral stairs to a VIP lounge, in which another senior accounting manager is waiting. Today, they want to recommend a wealth-management product to Ms. Zhou-Fund of Funds (FOF). Xiao feels he’s chosen what his customer wants; Zhou has been enjoying everything since her arrival.
However, Xiao isn’t actually trying to sell wealth management products today. Zhou has, in fact, never dealt with Citibank before, neither has she opened a major account with a foreign bank. Zhou, who resides in Shanghai, owns an Audi, maintains a large suburban home and runs her own business. The past six months have been spotted with calls from around a dozen banks. But she felt inclined to visit Citibank to find out what a well-known world-class bank is like. Xiao thus wants to leave a favourable impression on Zhou.
Within only one year, foreign banks have sharpened the eyes of their local employees when identifying customers. Their account managers understand what they have to do to draw target customers.
December 11, 2007, was the one-year anniversary of China opening its renminbi business to the world. While dozens of foreign banks sticking to their existing business and high-end personal services, 16 of them incorporated locally in China and are working to provide renminbi retail services.
Unlike domestic banks doing business in their home market, foreign banks that expect to provide retail services in China have to face a formidable challenge-winning customers. With relatively or very wealthy people as their target groups, foreign banks already had their course charted before arriving in China.
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Citibank, HSBC, Standard Chartered, and Bank of East Asia (BEA), the first 4 foreign banks to incorporate in China, happen to have all chosen housing loans as their entrance strategy. Taking advantage of China’s continuously overheating real estate capital market, foreign lenders gained a solid foothold when China’s government began, in July 2007, to tighten the housing-loan business operated by Chinese banks due to inflation concerns.
Many observers felt foreign banks would be able to win customers by offering services domestic banks were not allowed to deliver. Although interest rates and charges are nearly identical for both Chinese and foreign banks, the latter has higher standards when evaluating applicants for housing loans.
In addition to home financing, foreign lenders are offering another service in China: personal credit products, which are considered subversive to domestic banks and mass mentality. Anyone can apply for a certain amount for personal credit without taking out a mortgage or warranty, only showing their credit cards or other credit certificates will be done. Standard Chartered’s “Consumer Loan” plan, for example, has attracted thousands of customers. The product stands as an excellent example of the ease foreign banks have developing new products and their ability to manage risks.
What foreign lenders are doing is just replicating the products, chains, and models they have already deployed in overseas markets. The above-mentioned “Consumer Loan” plan is the result of Standard Chartered’s success in more than 30 countries and regions.
Whether convenience store, airport or hotel, Citibank is installing ATMs in as many places as it can find. In Citibank’s eyes, the cash machines are the best possible advertisement. It has so far set up 95 ATMs, more than BEA’s 78 or HSBC’s 82.
But what Citibank is doing in China, it has already done elsewhere. Anand Selvakesari, a banker with Citibank India, was a frequent face at press conferences and other bank-related public events throughout 2007. He is now the director of Citibank’s retailing business in China. Years prior, when the Indian market set high barriers for foreign banks, Citibank used the same tactic, deploying hundreds of ATMs in over 30 cities around the country. Citibank hoped all of India’s wealthy would turn to Citibank, without hesitation.
Foreign banks have been doing another thing to get more shares: setting up offices everywhere. Opening about two new offices per month, most foreign lenders made a significant leap in terms of accessibility. In 2006, HSBC had 27 offices throughout China; in 2007, however, the number increased to 53, almost doubled.
The role offices play in improving retail business is undeniable. They provide a direct line of communication with China’s customers, echoed, in part, by the locations foreign lenders chose to establish their first branches. Regions with fast economic growth were first targeted-the Yangtze Delta, Pearl River Delta and Bohai District formed the starting line. This, no doubt, would bring the banks a great number of high-quality individual customers and numerous corporate clients. Foreign banks would also be able to take advantage of these regions’ relatively mature commercial environments and infrastructure. Furthermore, most private enterprises with plans to “go global” would come from those regions. A good foothold in these regions thus makes more sense.
But foreign lenders have also set their feet in Western China, Chengdu and Chongqing in particular. Also noteworthy is HSBC’s interest in China’s rural financial markets. On August 6 2007, HSBC announced the establishment of its branch in Zengdu and Suizhou in Hubei province. Soon after, reports suggested that Citibank, Standard Chartered and BEA were preparing to follow suit.
Analysts, however, believe the actions were done more for advertising than profit-at least at present. Other opinions point to China’s native banking organizations accounting for less in rural market than they do in cities; barriers facing foreign banks are thus low.
It’s been a year since China’s financial market opened to the world. Foreign banks have not only benefited from doubled share prices they invested in Chinese banks, but gained substantial amounts of experience on the frontlines.
