GMAT考试jjxr文章精读30篇Chinas big banks Giant realitycheck.docx
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GMAT考试jjxr文章精读30篇Chinas big banks Giant realitycheck.docx
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GMAT考试jjxr文章精读30篇ChinasbigbanksGiantrealitycheck
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Fouroftheworld’sbiggestlendersmustfacesomenastytruths
Aug31st2013|Fromtheprintedition
“CHINA’Sbanksarenotrealbanks,”saysAndrewRothmanofCLSA,abrokerrecentlyacquiredbyChina’sCITICSecurities. Thecountry’sbiggestfinancialinstitutionsaresocloselyheldbythestatethattheyare,ineffect,armsofthetreasury. Cossetedbyrulesthatprotectthemfromcompetition,theydeliverhugeprofitsingoodtimes:
bankprofitsasashareofChina’seconomicoutputequallednearly3%lastyear,whereasthehighestratioachievedinrecentdecadesbyAmericanbankswasonly1%ofGDP(in2006).Inbadtimesthestateistheretocleanup,justasitdidduringasurgeindudloansin1990s.
ButthebargainthathasdrivenChina’s“BigFour”bankstothetopofthegloballeaguetablesisbreakingdown. Profitablethoughtheyarenow,anotherwaveofnon-performingloanswillsoonhitthem. AstheChineseeconomyrebalances,thestateislesswillingthanitwasinthepasttopourcreditintostate-ownedenterprises(SOEs)attheexpenseofhouseholdsandprivatefirms.MrRothman’sepithetwillnotholdforever. China’sbigbanksareslowlybecomingrealinstitutions.
ThatwillmatteroutsideChinaaswellasinsideit. Itsbiggestlendersaregiantsofthebankingworld(seechart1). IndustrialandCommercialBankofChina(ICBC),whichshowedapre-taxprofitofnearly$50billionlastyear,wasnamedrecentlyby TheBanker,atradepublication,astheworld’slargestbankmeasuredbycorecapital. In2000ICBC’sTier-1capitalwasjust$22billion;bytheendoflastyearithadshotupto$161billion,overtakingJPMorganChaseandBankofAmerica. ThreeotherChinesebankshavemadeitintothetopten:
ChinaConstructionBank(CCB),BankofChina(BOC)andAgriculturalBankofChina(ABC).
Thesheersizeoftheseinstitutionsisbreathtaking. ICBCandABChaveover400,000employeeseach,nearlyasmanyasVolkswagen,theworld’sbiggestcarmaker. ICBChasover4mcorporateclients. CCBhassome14,000branches.
TheBigFourwerecarvedoutofbitsofthePeople’sBankofChina(PBOC),thecentralbank,inthe1980s—thoughtheoriginalBOCdatesbacktotheQingdynasty. Ostensiblytheyweretoberunlikeprivatecommercialbanks:
allfourhavefloatedsharesontheHongKongandShanghaistockexchanges. Butthestatehasmaintainedmajoritystakesinthemaswellasinthenext-biggestbank,theBankofCommunications. TheBigFourareledbyseniorfiguresintheCommunisthierarchy,withbossesshuttlingeasilybetweenbanksandregulatoryagencies. WangHongzhang,CCB’schairman,waspreviouslyadeputygovernoratthePBOCandpartysecretaryatits“disciplineinspectioncommission”. XiaoGang,BOC’sformerchairman,nowheadstheChinaSecuritiesRegulatoryCommission,whichsupervisesstockmarkets.
SuchincestuoustiesareasignofthespecialrolethattheBigFourplayinChineseeconomicpolicy. Putbluntly,theyarethechiefinstrumentsoffinancialrepression. Becauseoftheofficialceilingondepositrates,thebigbankshaveasourceofcheapfundingthattheycandirecttofavouredSOEsandotherarmsofgovernment. ICBC,CCBandABCenjoyedthehighestnetinterestincomeofanybanksaroundtheworldlastyear(seechart2).
Buttheseheadlinefigureshideamultitudeofsins. China’suseofitsbiggestbankstoimplementthe2009economicstimulushasleftalegacyofmurkyaccounting,off-balance-sheettransactionsanddodgylending. Officialdataonnon-performingloansputtheirlevelatjust1%ofbankassets. Noonebelievesthatnumber.Thebanks’quarterlyresultsreleasedthisweekshowedprofitswithlittleincreaseinprovisions. ButMorganStanley,aninvestmentbank,reckonsamorerealisticfiguremaybe10%forallbanks,and6-8%forthebiggest. Thingsareworseinthemanyindustriessaddledwithovercapacity:
17%ofloanstothemanufacturingsector,forexample,couldbecomedudsiftheeconomysours,saysMorganStanley.
Thebigbankshavebeenherebefore.Inthe1990sanelaboratebail-outwasdevisedtorecapitalisetheBigFourandtransferdudloanstoasset-managementcompanies. ItisimprobablethatabigChinesebankwouldbeallowedtogounderifasimilarsituationaroseagain. Neverthelesstheirmarketshareisrightlyunderthreat.
Threechangesinparticularareweakeningtheirposition. ThefirstisthestagnationofSOEs,whichstandsinsharpcontrastwiththedynamismofthe“bamboocapitalists”intheprivatesector. NicholasLardyofthePetersonInstituteforInternationalEconomics,athink-tank,calculatesthatoverthepastdecadeSOEshavedestroyedsomuchvaluethat,intheaggregate,theyhaveproducednegativerealreturnsoncapitalemployed. Butprivateindustrialfirms,whichcreatemostjobsandmucheconomicgrowth,havesharplypositivereturns.
Astheeconomyslows,China’sleadershavedecidedthatresourcesshouldnotbesquanderedinthisway. Recentofficialproclamationsthreatentocutinvestmentinbloatedstate-runindustries. China’sbigbanksmustthereforechangehowtheydobusiness,thoughtheywillstillbetemptedtolendtobigfirmsthattheysuspectwillnotbeallowedtofail.
Policymakersarealsoconcernedabouttheriseoftheshadow-bankingsector. Becausesaversmakelittlereturnontheirbankdeposits,theyhavesoughtriskieralternatives,anythingfrompropertytoshadowyinvestmentinstrumentsknowneuphemisticallyas“wealth-management”products—someofthemlittlebetterthanPonzischemes. CharleneChuofFitch,aratingsagency,arguesthatshadowbankingispushingfinancialintermediationfromafewbigbankstotensofthousandsoffinancing,leasingandguaranteefirmsandotherlessregulated,informaloutfits. This,shethinks,ismakingfinancialdatamurkyandlessreliable.
IfChina’sleaderseverdidendthecapondepositratesitwouldmeanarevolutioninbanking. Intheshortterm“theprofitsofalmostallbankswouldshrink,”saysOliverRuioftheChinaEuropeInternationalBusinessSchool. Inthelongterm,though,hethinkstheresultingcompetitionwouldleadthebetterbanksbacktohealthymargins. Itmightalsogearthemuptowinbacksomemarketsharefromtheshadow-bankingsector,reckonsPeterWilliamsonofCambridgeUniversity’sJudgeBusinessSchool. Areporteddecisiontoallowbankssoontostartissuingtradablecertificatesofdepositseemslikeanothersteptowardspreparingthemforanendtothecap. Butitwouldalsoexposethemmoretoshort-termfundingrisk.
ThethirdforceforchangeisChina’slong-awaitedshiftfromaninvestment-ledeconomytoonefiredbydomesticconsumption. Overthepasttwoyearsrealconsumptionhascontributedmoretoeconomicgrowththanhasgrossfixedcapitalformation;servicesorientedtowardthedomesticmiddleclasseshavegrownmorestronglythanhasexport-orientedmanufacturing. Ifthistrendacceleratesitwillencouragethebanksthemselvestomakemoreloanstosmallandmedium-sizeenterprisesandmiddle-classconsumers.
Thewindsofchange
Thatwillforceaculturalchangeatbankswhichinthepastpaidlittleattentiontocustomerserviceorcreditquality. JosephNgaiofMcKinsey,aconsultancy,arguesthat“lendingwillnolongerbeaseller’smarket”,inwhichfirmsramcreditdownthethroatsofSOEs. Hisfirmforecaststhatloanstosmallcompaniesandhouseholds,whichtogethermadeupjust22%ofthetotalin2006,willsoarto57%ofallloans(asmeasuredbyvalue)by2021.
PutallofthesetrendstogetherandthefuturelookslessthanrosyfortheBigFour. WenJiabao,China’sformerprimeminister,declaredlastyearthatthey“makeprofitsfartooeasily…wehavetobreakuptheirmonopoly.”RecentproclamationsfromthePBOCtalkofboosting“privatecapital”inbanking. OnAugust9ththeChinaBankingRegulatoryCommission,theindustry’smainregulator,unveileddraftrulesforbankinglicencesthataredesignedtoencouragetheentryofprivatecapitalintotheindustry.
CompetitionhasalreadybeguntodenttheBigFour’smonopoly. Smallerbanksknownasjoint-stockcommercialbanks(JSCBs)wereformedinthelate1980sandearly1990sbyraisingmoneyfromboththegovernmentandtheprivatesector. TheambitiousgrowthofJSCBslikeChinaMinshengandChinaMerchantshasmeantthattheBigFour’sshareofbankingassetshadalreadyshrunktobelow50%by2010. Aslendingdemandfromsmallfirmsandhouseholdsrises,theyearsofexperiencethatJSCBsalreadyhaveinthissectorwillcountforevenmore.
Competitionisalsoemergingfromunexpectedquarters. AlibabaandTencent,twoChineseinternetgiants,aremovingenergeticallyintofinancialservices. Tencentoffersonlinepaymentservicestofundmanagers,andwealth-managementservicestousersofWeChat(apopularsocial-mediaappwithmorethan300musers). Alipay,Alibaba’sonline-paymentarm,hasintroducedaservicecalledYu’EBao(“remnanttreasure”)whichofferse-commercecustomersaneasywaytodivertleftovercashintohigh-interestfunds. Injustafewmonthsithasattractedover$1billionininvestments.
Thesefirmsandsmallerupstartshaveaminusculemarketshare,but“thisthreatisallthatanybankpresidentherewantstotalkabouttoday,”saysafinancial-industryspecialist. Caixin,aChinesefinancialmagazine,reportsthat“severallargebankshaveformedan‘Ali-bashinggroup’tofightwhattheyseeasAlibaba’sinvasionoftheirturf.”
Theyarerighttobeworried.Foronething,puntersactuallyliketheproductsandservicesofferedbytheinternetinterlopers. Whatismore,unlikeChina’saloofbankers,theseinnovatorsalreadyhavevolumesofproprietarydataontheonlinepurc
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