Foreign banks will need niche to prosper in FTZ
Liberalization policies are creating opportunities for overseas financial institutions and their clients, reports Wu Yiyao from Shanghai
Since the China (Shanghai) Pilot Free Trade Zone was launched in September, there’s been an increasing number of bank opening ceremonies, and executives of foreign banks said that as more detailed guidelines are released, business has been picking up.
Since March 1, there’s been no interest rate ceiling on foreign currency deposits of up to $500,000, whether held by companies or individuals.
And according to the People’s Bank of China, companies based in the zone may borrow offshore yuan.
There’s certainly plenty of competition, bankers said, but with the vast demand in the zone, lenders should be able to find a market niche.
“I think there’s ample market demand in the zone, and each player may have its own strengths. Competition is good for clients, and we are looking for a win-win-win situation for lenders, clients and themarket,” said Andrew Au, chief executive officer of Citi China and chairman of Citibank (China) Co Ltd.
Unlike branches ofChinese lenders in the FTZ, foreign banks’ facilities are less crowded. Indeed, some are essentially deserted.
“It’s not that we have less business than Chinese lenders; it’s simply because foreign banks may attach more importance to corporate finance, a business that clients candoovertheInternet. There is less on-site, face-to-face contact,” saidanemployee at a foreign bank outlet in the FTZ.
Foreign banks are probably eyeing the expanding trade that will be conducted through the FTZ. Those transactions will increase demand for cross-border financing, said Jimmy Leung, a banking specialist at PricewaterhouseCoopers.
Access to global networks will help foreign banks leverage their FTZ presence to forge links between the zone and foreign markets, helping clients capture new growth opportunities, bankers said.
The FTZ is a milestone in China’s efforts to build an international financial center in Shanghai and reform the economy for longer-term viability, said Neil Ge, DBS Bank (China) Ltd’s chief executive officer.
“As a leading bank in Asia, DBS is committed to leveraging our strong Asian connectivity and insights from Singapore and Hong Kong to fully support the development of the zone,” said Ge.
Innovative cross-border yuan businesses have been created, including cross-border yuan cash pooling and centralized cross-border transactions in the yuan.
These solutions mark another milestone in the development of the zone’s financial services industry. Banks including Citibank and HSBC Holdings Plc are offering such services.
Enterprises within the zone have benefited from these financial innovations. Saint-Gobain SA is among the first group of multinational corporations to implement some of these solutions in the FTZ, according to HSBC.
Saint-Gobain makes and distributes building materials. It also has operations in energy conservation and environmental protection.
Since entering China in 1985, SaintGobain has invested more than 2 billion euros ($2.79 billion) in the market.
Using a subsidiary in the FTZ, the company can centralize payments and collections for merchandise and services trade settlement, along with other current account items, thus improving the use of renminbi settlements within the group.
It’s also been able management more Asia.
Centralized payments and collections are efficient cash management solutions for multinational companies, which need to manage accounts payable and receivable amongmany subsidiaries, bankers noted.
Regulations in the FTZ enable such companies to consolidate and offset accounts payable and receivable in a single transatransaction. to make its cash efficient within