By Zhang Liping

Research Report Vol.18 No.3, 2016

I. Development of Overseas Business of Chinese Financial Institutions

Recent years saw expanding overseas business of Chinese financial institutions, with more overseas investment, assets, profits, and employment, as well as more involved in international project financing. But there is still much room for improvement compared with their internationally renowned counterparts. 1. Distribution of overseas investment China’s outbound direct investment (ODI) has been on the rise since 2008. The amount of investment rocketed to $14.05 billion in 2008 from $1.67 billion in 2007. Although 2009 saw some decrease, ODI still shows an upward trend, reaching $134.6 billion in 2014 (see Figure 1). China’s financial sector has been contributing no more than 15% to the total ODI (see Figure 2, except 2008), which shows that ODI of the financial sector, during the current stage of development, mainly helps the real economy go global, and there is much room for further growth of ODI of the financial sector. Internationally-competitive financial institutions, instead of expanding domestic services abroad, pool capital and human resources and optimize allocation of resources in a larger scope. Only when ODI of the financial sector exceeds overseas expansion of domestic enterprises, can the financial sector exercise impact on international financial market. From investors, ODI of China’s financial sector is mainly derived from banks, especially the four largest state-owned commercial banks, including Bank of China, Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China. By the end of 2014, a total of 20 Chinese banking financial institutions have opened more than 1,200 overseas branches, covering 53 countries and regions in the world, with total assets of $1.5 trillion. A total percentage of 70.6% of overseas establishments of the four banks concentrate in Asia-Pacific region, and Europe, mainly in the form of branches, which somewhat reflects China’s financial sector still enjoys the basic way of investment (see Table 1). Moreover, financial institutions are expanding their securities business overseas. At present, some large-sized securities companies, like Citic Securities, Haitong Securities, China International Capital Corporation Limited, and medium ones such as Sinolink Securities, Soochow Securities, and Southwest Securities have started business overseas. For instance, Haitong Securities and Citic Securities enjoy soaring growth of brokerage and investment banking business by setting up overseas branches, both with overseas revenues accounting for more than 10% of the total. Hong Kong still sees the lion’s share of overseas business of domestic securities, with a total number over seventy. And overseas acquisition has become a common way for China’s securities to go global. The international business of Chinese insurance sector is mainly in the form of overseas investment with insurance funds, whose pace and scale have been tremendously improved from the introduction of Detailed Rules for the Implementation of the Interim Measures for the Administration of Overseas Investment with Insurance Funds in October 2012, to Several Opinions of the State Council on Accelerating the Development of Modern Insurance Service Industry in August 2014, which clearly propose to expand overseas investment with insurance funds. Data show that as of late December 2014, overseas investment with insurance funds was $23.955 billion (about 146.58 billion yuan), 1.44% of total assets of the insurance industry, $14.255 billion more than that by the end of 2012, an increase of 146.96%. Insurance funds are mainly invested in Hong Kong market, with over 64% of investment in assets in Hong Kong dollars. Varieties of investment mainly include equity assets, like stock and equity. In addition, real estate accounts for 20% or so, and there are some bank deposits and bonds with fixed income.

2. Proportions of overseas assets, profits, and employment To assess overseas expansion of financial institutions, a key indicator is the proportion of overseas assets, profits and employment. By comparing the indicators of Chinese financial institutions and those of their international counterparts, it is possible to see their level of internationalization, and the gap between them and their international counterparts. Owing to data availability, this report analyzes China’s four largest state-owned commercial banks mentioned above. A rapid increase can be seen in overseas assets and profits of Chines banks. According to their annual reports, as for Bank of China in 2014, overseas assets and profits grew by 18.11% and 29.91% respectively, contributing 22.98% to the total profits, an increase of 3.60 percentage points compared with the previous year; and the net profit of Industrial and Commercial Bank of China reached 15.1 billion yuan, 35.6% up from the year earlier. However, their overseas expansion is far from satisfying. The proportions of overseas assets, profits and employment of Bank of China are some 25%, 25% and 8.2% respectively, while those of the other three banks are no more than 8%. Moreover, in the past eight years, the averages of the overseas assets, profits and employment of the four state-owned commercial banks and Bank of Communications are 8.09%, 6.12% and 6.30% respectively (see Table 2), while those of Citigroup are 60.29%, 50.59% and 50.32% respectively, and those of HSBC are 48.36%, 62.35%, 69.05% respectively, far higher than the averages of the above-mentioned five banks headquartered in Mainland China. Trans-nationality Index (TNI), a major measurement of the internationalization level of enterprise, is calculated as follows. TNI = (the ratio of foreign assets to total assets + the ratio of foreign sales to total sales + the ratio of foreign employment to total employment) / 3 x 100% A higher TNI indicates a higher level of internationalization. Replacing the ratio of foreign sales to total sales with that of overseas profits in Table 2, it is possible to work out TNI of the four state-owned commercial banks. According to Table 3, TNI of Bank of China is the highest, nearly 20; and the lowest, less than 2, is found in Agricultural Bank of China. However, other data show TNI is over 50% in most large-sized multinational financial institutions abroad. It is easy to see the giant leap in the internationalization process of Chinese financial institutions, but still a large gap to catch up with the internationally advanced level.

3. Participation in international project financing Financial institutions participate in international project financing, which, on the one hand, provides fund for brick-and-mortar enterprises going global and ensures their overseas business, and on the other hand, improves their own international competitiveness. Therefore, participation in international project financing is another important indicator, mainly including syndicated loans and corporate M&A financing. ...

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