Banking in China

Banking in China

Call date: 22nd October 2020

In this call, members discussed the challenges of banking in China.

The discussion covered their experiences with different banks & fintechs in China, including: Agricultural Bank of China, Alipay (Ant Financial), Citi, HSBC, ICBC, JP Morgan, WeChat Pay.

The call was chaired by Damian Glendinning whose commentary is below.

Report by Monie Lindsey

Please contact us if you would like a copy of the full report (14 pages)

Click here to view all our reports on China

Chairman’s comments.

We held two sessions, for treasurers based in Asia and North America – both worked for Europe. As in most other countries, MNC treasurers tend to work with international banks, and most are quite successfully managing their business this way. However, some level of local banking support is required for items such as tax payments, and collections can be difficult without the aid of local banks, if business is spread throughout the country.

Many participants are using cash pooling, both within China and cross border into Hong Kong. A surprising number is pooling into Singapore. Typically, these pools are run by international banks, though a couple are using Chinese banks.

Amongst the international banks, HSBC and Citi were mentioned most often. JPMorgan is used by a couple of participants – they were commended for the use of virtual branches, which enable the MNC to deal with them, while they interface with the local banks, where required. 

A couple of participants use local banks, with Bank of China and ICBC being mentioned the most often, with one using Agricultural Bank of China (ABC) The general view is that Chinese banks tend to be very siloed and not interested in managing the relationship across the whole business. However, one participant has an excellent relationship with ICBC in Europe, and the European office is interfacing with the local branches in China to provide a seamless relationship with high levels of service. 

A common theme with local banks was the complexities caused by the need for capital accounts: setting up new legal entities remains a bureaucratic process.

One discussion which arose was the increasing use of fintechs, such as AliPay, to replace functions which are typically performed by banks, especially payments and receipts. Often, Chinese banks simply do not provide a lot of the services provided by banks in other countries: this is due to their history. For many years, banks in China did not function as businesses, but as conduits for distributing centrally allocated funds to state owned enterprises. This means that a lot of the functions routinely provided in other countries simply did not develop: this is particularly the case in the retail sector, where credit cards have a low usage and acceptance level. This, in turn, has left a vacuum which is currently being filled by non-bank providers such as Ant Financial (AliPay) and WeChat Pay. The use of these platforms is spreading to the corporate space: several participants are now paying employee salaries into AliPay accounts, rather than bank accounts, and they are seeing increasing use in B2B transactions.

Overall, all treasuries are able to function, perform cash pooling and repatriate cash from China, with a relatively good level of efficiency. However, frustrations continue to exist with complex requirements which can necessitate the use of local banks, and higher levels of cash being maintained than most would like. 

At the same time, it is possible that the frustrations incurred when dealing with banks in China may be leading to the development of the first truly cashless society, and the one where modern payment technologies are used to displace banks from a large portion of the transaction processing they have typically viewed as being theirs.

One way or another, it will continue to be fascinating to see how the treasury and banking scene in China develops.

Premium members can and subscribers can download the full report here.

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