Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
One direct investment by a Bay Area financial institution has attracted considerable outside interest.
San Francisco-based Newbridge Capital’s December 2004 purchase of an 18% stake in
the mid-sized Shenzhen Development Bank is considered a bellwether by economists and analysts.
Although small by Chinese standards at only $150 million, the purchase gave Newbridge
effective management control of the troubled bank. This makes Newbridge the only foreign firm
to control a Chinese bank. The Chinese appear to have selected Newbridge in part due to its
success in turning around Korea First Bank after the Asian financial crisis. The Newbridge deal
is widely viewed as an experiment by the government to determine how effectively foreign investors
can rehabilitate troubled banks, and analysts are monitoring the bank’s progress closely.
It is too early to pass judgment on Newbridge’s success, but if it manages to turn around Shenzhen
Development Bank, it could encourage the government to allow foreigners to take controlling
stakes in other Chinese institutions.
Banks operating in the Bay Area play a limited role in intermediating financial flows with Greater
China, but they offer crucial services for facilitating trade and provide financial linkages between
the local Chinese community and home towns and villages on the mainland. Although hard data
on China-related banking services is largely unavailable, a clear picture of the services provided
and major players can be drawn.
Bank units linking the Bay Area with Greater China include several types of financial institutions.
Some Taiwanese and Hong Kong banks and their U.S. subsidiaries maintain branches in the Bay
Area. Several locally-based banks with close ties to the ethnic Chinese community focus on
China-related financial services for Bay Area individuals and corporations, or maintain offices or
branches in Greater China. Larger mainstream banks, whether locally based firms like Wells
Fargo or nationally based banks such as Bank of America, also conduct business with firms
dealing in China from the Bay Area. Often, the Bay Area is the U.S. location of choice from
which to develop the bank’s China business.
The various types of Greater China-related banks differ more in client bases than activity. The
big mainstream banks tend to service larger corporate customers. Branches of Taiwanese or
Hong Kong banks focus on clients from their home markets with Bay Area interests. The community
banks have historically conducted most of their business with ethnic Chinese, but increasingly
are positioning themselves as banks with China expertise rather than ethnic Chinese
banks. They target individuals and small and medium-sized businesses with origins or interests in
Greater China.
Trade finance is the biggest China-related banking activity conducted out of the Bay Area. Mainstream
banks, community banks and Bay Area branches of Hong Kong and Taiwanese banks all
provide basic trade finance services such as letters of credit and documentary collections. Because
China-U.S. trade is so imbalanced in favor of Chinese exports to the U.S., most trade finance
clients are U.S. importers, but some servicing is conducted on the Greater China end.
Within California, competition is increasing between major banks such as Wells Fargo and
Bank of America and smaller banks based primarily in the Chinese-American community, for
what is becoming an increasingly attractive market segment. Earlier this year, for example, Wells