China

Country starter pack
Business practicalities in China
107
5.6 BANKING IN CHINA
Banking environment
It would be fair to describe China’s banking and regulatory
environment as still nascent. Nevertheless, it is fast
changing and, as a result, so is the business landscape
in China. Indeed, change would appear to be the one
constant, with Beijing flagging further deregulation for
the banking sector, particularly in Shanghai’s FTZ and in
the context of the China Australia Free Trade Agreement
(ChAFTA). Given the nature of such changes, PwC
envisages China overtaking the US as the world’s largest
banking market by 2023, based on the projected growth
of domestic banking credit assets.
At the pinnacle of China’s banking system stands the
nation’s central bank, the People’s Bank of China,
which is responsible for monetary policy and regulating
financial institutions. But key partners in the oversight
of the financial sector include the State Administration
of Foreign Exchange (SAFE) and China Banking
Regulatory Commission (CBRC). The sector itself
is dominated by four State-owned players – the
Agricultural Bank of China (ABC), the Bank of China
(BOC), China Construction Bank (CCB) and the
Industrial and Commercial Bank of China (ICBC), which
account for more than half of all banking assets, with
the rest controlled by city-based commercial banks,
privately-owned financial institutions and credit cooperatives.
Foreign banks won a toehold a decade ago,
in December 2006, when China opened its doors to
foreign competition. By the end of 2011, more than 180
banks from 45 countries and regions had established
a presence, among them nearly all the world’s banking
behemoths including Citibank, HSBC and Standard
Chartered. Australia’s big four banks (ANZ, CBA, NAB
and Westpac), along with the Macquarie Group, were
among the first to seize the opportunity. In return,
China’s five leading banks have opened headquarters in
Australia, complementing China-Australia business links
and making it easier for Australian companies to access
China-specific financial expertise.
Australian businesses entering China and looking to
maximise opportunities will need to work with local banks.
This is becoming increasingly easy as local banks, eager to
grow internationally, welcome the opportunity to lend to
foreign companies and will usually have greater capacity
to advance credit than most local offshoots of foreign
banks. Advantages of using domestic banks includes them
having extensive networks, relationships with the state
institutions generally, SAFE in particular, as well as their
entrenched position within Chinese society. They will
likely have better capabilities within China to process local
– as well as foreign exchange – transactions. Foreign
banks on the other hand have the benefits of being more
developed and advanced in the areas of technology,
relationship management, transparency and global reach
and expertise. These advantages are slowly but surely
being whittled away as China’s banks grow beyond the
nation’s borders to embrace international opportunities.
For now, developing a working relationship with China’s
domestic banks can be challenging, and Australian
businesses must understand the differences. A key
difference to banking in Australia can be the often
apparent disconnect between a bank’s head office and its
branches. Working with different branches can seem like
working with completely separate banks. The operations
of domestic banks can lack sophistication and are still
evolving, with services, technology, customer support
and relationship management models falling short of the
standard of those of their foreign counterparts. Also,
banks’ policies and practices can vary wildly. Choosing
the right bank for a business model can be critical: for
example, some may require businesses to move their
money by 3pm each day, while others may have a later
cut-off time. Technological expertise varies too, with
some branches fully automated, others are not. Fees and
charges may also differ.
Business and banking
It is important when operating a business in China to have
a clear-cut and effective bank account structure that
complies with the various local regulations but does not
impinge on the drive for efficiencies and the ability of a
business to operate effectively. Several account types
will be necessary; for starters, a local currency (RMB)
account and a foreign currency one. These can be opened
with local Chinese banks or foreign-owned banks that
have a licence to operate RMB accounts.
Australian enterprises need to complete regulatory
requirements and show their business licence to a bank
before they can open any accounts. The rules vary. For
example; for a wholly foreign-owned enterprise (WFOE)
a capital account is necessary and the required capital
remitted before local trading accounts can be opened. A
note of caution, however: not all foreign banks operating
in China are able to open capital and RMB accounts.
Choosing the right bank to match the needs of a business
can be critical and some businesses will consider holding
accounts at a number of banks to guarantee flexibility
and reduce the risk of disruption to their operations. This
approach can sometimes be dictated by customer and
regulatory needs: the former, for instance, may require
a company to have an account with a bank at a particular
branch, or a local tax authority may prefer that an
account be opened at a certain location, even if such an
account would not be strictly required under regulation.
Dealing with banks in China can be a frustrating
experience. For a start, bank branches can be
overcrowded and service slow. Australians, used to swift
access to bank employees with authority, can sometimes
feel in a time warp. Such delays underscore the value of
building a good relationship with a local branch manager.