Chinese banks expand in Asia To some extent, the offshore expansion of Chinese banks has been driven by government policy. The central government has historically maintained a tight grip on cross-border capital flows, keeping China’s capital account largely closed. Outbound investment from China was negligible until this century. In 2000, the government officially launched the “Go Global” policy, under which Chinese companies are encouraged to invest overseas, and in 2001, China joined the World Trade Organization (WTO), which deepened the country’s integration into the global economy. These events kicked off a massive, ongoing boom in Chinese direct outbound investment, which expanded from US$2.7 billion in 2002 to US$102.9 billion in 2014.4 Chinese banks are following their customers overseas, providing low-interest loans to fund the dramatic expansion of Chinese companies into foreign markets. The overseas growth of China’s banks has also been fuelled by the government’s desire to internationalize the yuan (or renminbi), making it a truly global currency, starting in the mid-2000s. By January 2015, the yuan was used for some 25% of China’s global trade settlements, and in late 2015 the International Monetary Fund (IMF) agreed to add the yuan to its reserve currency basket5, affirming that the currency is “freely usable” internationally6. The accelerating use of the currency abroad has created fertile soil for the expansion of Chinese banks in cities where offshore yuan markets have emerged, such as Hong Kong, Singapore, London and New York.
Chinese banks have benefited from the massive expansion of their assets in the years following the GFC, and the twin forces of currency liberalization and outbound investment growth are pushing them abroad. Bank of China leads the way, with an estimated 23% of its pre-tax profit and 30% of its total assets (about RMB 4.5 trillion) accounted for by operations outside the mainland, according to Moody’s data. China Construction Bank and Industrial and Commercial Bank of China (ICBC) are also actively boosting their foreign presence, with purchases of overseas financial institutions. The chairman of ICBC has estimated that 18 Chinese banks have established 1,127 foreign-funded institutions overseas in 51 countries and regions, with more than US$1.2 trillion of total assets as of the end of 2014.7 The growing profile of Chinese banks overseas is reflected in their increasing occupancy of office space in Asian financial centers. In addition, Chinese banks are also boosting their investments in overseas real estate, including office space for self-use. Available transaction records8 show that overseas commercial property investment by mainland banks jumped steeply in 2012, totaling US$492 million for the year; the annual total in prior years had never exceeded US$193 million. Annual investment continued to climb in 2013 and, after a dip in 2014, reached a new height of US$600 million in 2015, greater than the total investment in the six years from 2006-2011.
4 http://www.chinadailyasia.com/business/2015-09/16/content_15317587.html 5 http://www.cnbc.com/2015/11/30/imf-agrees-to-include-chinas-rmb-in-benchmark-sdr-currency-basket.html
6 http://www.imf.org/external/pubs/ft/survey/so/2015/new120115a.htm 7 http://www.chinadailyasia.com/business/2015-09/16/content_15317587.html 8 Real Capital Analytics
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