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In 2010, Jiang Jianqing, then-chair of China’s largest bank ICBC, made what seemed like the deal of the century: acquiring a foothold on Wall Street for just one dollar. This strategic move, buying a unit of Fortis Securities, was hailed as a savvy entry into the global securities business, signalling Chinese banks’ readiness to play in the big leagues.
Fourteen years on, the shine of that deal, now known as ICBC Financial Services, has been somewhat tarnished by a major cyber attack last year. Despite the unit’s moderate profits from US Treasury clearance since the takeover, the hefty one-time cost of system recovery and the risk of client loss have led senior bankers in Beijing to question the wisdom of the move to Wall Street, and to assess the remaining value this division brings to its parent bank.
This episode mirrors the broader challenges facing the offshore operations of Chinese banks. Having ventured abroad more than a decade ago, major Chinese banks manage more than Rmb12tn ($1.7tn) in foreign assets, one senior banker revealed last year. Their initial expansions were fuelled by mergers and acquisitions in the post-financial crisis era, riding the winds of globalisation. Bank of China, the most internationally exposed bank among its peers, now operates a sprawling network of 534 branches, covering a third of countries globally, according to its latest annual report.
But the days of easy growth through deals are gone, and the current international climate is less favourable for any assertive moves by Chinese lenders. Rapid shifts in geopolitics, economic fundamentals and technology mean these banks must have a more sophisticated strategy than ever.
Top Chinese bankers realise that their global strategy now has to focus on organic growth. Acquiring overseas units often translates into lengthy integration efforts, which are challenging to steer from Beijing and sap the parent bank’s resources. The cyber attack on ICBC FS is a costly reminder of the pitfalls of independent systems, and how the detachment from central command can impede swift action and crisis management.
The tighter grip of party controls since the Chinese government’s overhaul of the financial regulatory regime adds another layer of complexity. The actions or decisions of offshore branches may occasionally conflict with headquarters’ current directives, causing unexpected controversies that could backfire politically back home. And vice versa, the element of stronger state control draws scrutiny from abroad, particularly in a political climate wary of banks’ expanding ties, including more dealings with Russian banks following Moscow’s full-scale invasion of Ukraine.
There have been some interesting developments in recent years. ICBC and BOC have been setting up more branches along the Belt and Road regions across Asia to diversify away from previous focus on developed markets. Back home, a cooling Chinese economy is pushing businesses and their bankers to hunt for fresh pastures in places such as south-east Asia and the Middle East. This could offer opportunities linked to shifting global supply chains and the “China Plus One” trend.
Lending priorities have moved away from the traditional focus on the property sector and infrastructure projects towards supporting areas critical to future economic growth. These include electric vehicle supply chains, manufacturing, strategic mining companies and a group of smaller cross-border ecommerce companies that are copying the model of Shein, which was privately valued at $66bn last year.
But navigating this new terrain still presents significant hurdles in planning out strategic visions and risk controls. They require sensitivity to geopolitical shifts and international business dynamics, now becoming as crucial as understanding domestic politics. They also require unparalleled technological adaptability, facing challenges in data protection and system stability to cope with incidents such as ransomware attacks, less familiar concepts on the mainland.
Staying commercially competitive is also key. To maintain investors’ confidence, these global expansions must prove financially viable — a contrast to the pre-2008 landscape when state banks were not yet listed on stock exchanges.
Jiang’s US deal for ICBC marked a bold foray for Chinese banks into global banking. However, today’s Chinese bankers must navigate a far more complex and challenging environment than during his era. Success now hinges on being more attuned to the global financial landscape than ever before.
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