China financial firms to speed up expansion in Europe

The expansion of mainland-based financial firms in Europe will speed up in the coming years as the government expands funding for the nation's companies' moves to invest and operate overseas.

Chinese companies' moves abroad are on an incredible rise. In the first nine months of 2014, outbound direct investment totaled $75 billion, up 22 percent, according to the Ministry of Commerce.

In this context, better financing can make more use of excess production capacity and promote cooperation with foreign companies, according to a statement following a State Council (cabinet) executive meeting presided over by Premier Li Keqiang on Dec 24.

Approval for overseas investment should be easier to obtain, including the procedures for listing, mergers and acquisitions overseas and for banks setting up foreign branches.

China will ensure financing support for exports of heavy equipment by encouraging commercial banks to offer loans for the entire industry chain of equipment manufacturing, the statement said.

On the financial firms' side, the drive for geographic expansion reflects their own globalization strategy and China's efforts to build up overseas bank outlets as the yuan gains a greater share of global trade.

There are some Chinese banks and financial firms that are preparing to get a foothold overseas by launching operations in European cities such as London.

And because there are distressed opportunities in eurozone economies, the Chinese financial services sector can be an active participant by acquiring banking assets.

One example of this trend is the Chinese financial services company Anbang Insurance Group Co Ltd, which reached an agreement on Dec 16 to buy Delta Lloyd Bank Belgium from Dutch financial group Delta Lloyd NV for 219 million euros ($274 million). That deal followed Anbang's acquisition of Belgian insurer Fidea NV from United States-based private equity firm J.C. Flowers & Co in October.

With managed assets of about 7.7 billion euros, Delta Lloyd Bank Belgium focuses on middle-and high-end clients, serving 171,000 customers out of 55 branches.

Delta Lloyd, which aims to be one of the top three life insurers in Belgium, will continue to use the bank network as a distribution channel for insurance and pension products.

Just last month, the first Chinese purchase of a European investment bank was announced on Dec 8, with Haitong Securities Co Ltd agreeing to pay 379 million euros for an investment bank in austerity-hit Portugal. Banco Espirito Santo de Investimento SA was being sold by Novo Banco, the bank carved out of Banco Espirito Santo after it was rescued in August.

Such deals can help Chinese banks expand their global footprint and gain valuable European banking licenses and expertise, notably in debt markets, that can be transferred back to China.

To achieve sound growth, Chinese financial firms are likely to shift from large transformational deals to small and medium-sized transactions.

In the Haitong case, for China's second-largest brokerage, it was a modest deal, equivalent to just 1.5 percent of Haitong's market value.

Chinese banks do not have much management expertise to run Western-style banks, so it may be better to acquire larger stakes in brand-name lenders in Europe instead of taking control outright.

In recent years, Chinese financial institutions have learned lessons from the investments made abroad during the financial crisis.

China Investment Corp, the sovereign wealth fund, took big stakes in Morgan Stanley and The Blackstone Group LP just before the global financial crisis savaged their share prices.

Europe has been a major destination of Chinese investment in sectors from manufacturing and energy to food and retail, advanced manufacturing, research and development and infrastructure and real estate.

The continent is set to get more interest from Chinese banks and other lenders, which will support Chinese companies' activities in Europe and develop their own business as well.