Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
Most likely, smaller banks with roots in the local Chinese community process most of the remittances
that do pass through the Bay Area banking system. Although all large banks offer remittance
services to China, existing relationships with the Chinese community give ethnically-based
banks an advantage in the remittance market. Remittances form a small but growing part of local
Chinese community banks’ business.
Banking linkages between the Bay Area and Greater China extend beyond the traditional lending
business. Bay Area and Greater China banks will often maintain branches or subsidiaries on the
other side of the Pacific to help foster the home bank’s relationship with clients with international
interests. In this sense, overseas branches function less as revenue centers than as a way
to establish useful contacts and acquire local knowledge that can help core clients in the
home market.
Visa International is playing a different and very distinct role in China’s evolving financial system.
At the beginning of 2006, there were 10 million international Visa cards issued in China,
represent a nearly 70% market share of China’s growing payments card system. In 2005 this represented
a retail sales volume of $7.6 billion. Within five years the number of cards in circulation
may reach 50 million. Visa began operating in China in 1997, with an agreement with the People’s
Bank of China to jointly develop China’s National Integrated Circuit Chip Card Standards,
that subsequently defined the platform for IC card applications in China. Since then Visa has
introduced advanced payment card technologies and market strategies to 18 Chinese member
institutions, including the Bank of China, Agricultural Bank of China, Industrial and Commercial
Bank of China, China Construction Bank and the Bank of Communications. Visa has also
launched co-branded affinity cards, similar to those in the U.S., with banks, private companies
and leading university alumni networks throughout the country. At the end of 2005, 40,000
ATMs in China were connected to the ATM/PLUS international network, enabling cardholders
from around the world to withdraw Renminbi. While use of credit cards in China is still in its
infancy it is growing rapidly, with Visa playing a central role in its development and that of the
much larger electronic payments sector.
Note: The Forum extends special thanks to the Federal Reserve Board of San Francisco and to bank country
analysts Daniel Fineman (Southeast Asia, ex Philippines) and Richard Lung (China and Taiwan) for their
contributions to the preceding section.
Legal Services
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Foreign law firms were not officially permitted into China until 1992, but as early as 1979, firms
such as Coudert Bros., Baker & McKenzie and Graham & James took advantage of a loophole in
Chinese law allowing in trade-related consultants. They established legal “consultancies” in their
home countries or in Hong Kong, and then opened informal China subsidiary offices—most
located in suites in the Beijing Hotel—to serve as counsel for corporate clients doing business in
the PRC.