Xiamen, a reform pioneer
Coastal city drives China’s economic opening-up with first domestic JV bank
The 40th anniversary of China’s reform and opening-up is a good time to reflect on the country’s economic development. Over the past 40 years, China’s southeastern coastal cities have been at the forefront of the nation’s economic drive. In particular, the Xiamen Special Economic Zone (SEZ) has witnessed rapid economic development and played the role of a “test ground” after it established the first joint venture bank in China – Xiamen International Bank. Global Times reporter Zhang Hongpei recently paid a visit to the SEZ to investigate the opening-up of its financial sector. This is the second part of a five-part story.
Special Economic Zones (SEZs) have played a significant role in the reform and opening-up of China’s financial sector over the past four decades.
In particular, the Xiamen SEZ in East China’s Fujian Province has been taking the lead among the country’s five SEZs, by setting up China’s first joint venture (JV) bank – Xiamen International Bank (XIB) – in 1985.
That same year, the five SEZs, namely Shenzhen, Zhuhai and Shantou, all in South China’s Guangdong Province, South China’s Hainan Island as well as Xiamen, became open to foreign banks.
Coincidentally established in that same year when economic reform, opening-up and financial system innovation were called on, XIB was positioned as the “test ground” for China’s financial reform, said Huang Daqing, vice president of XIB.
Xiamen, a notable hometown for overseas Chinese, soon began attracting investment from Chinese residing in Southeast Asia, China’s Hong Kong and the island of Taiwan during the initial period of reform and openingup, Huang told the Global Times in an exclusive interview on Friday.
“But only a few domestic banks were able to provide specialized services to these enterprises at that time, while the branches of foreign banks in China were even fewer,” Huang recalled.
“As more and more foreign capital began gradually entering the Chinese mainland, they badly needed a bank to provide support to financial services similar to what they enjoyed in their home markets,” noted Huang, adding that State-owned banks took the majority of stakes in the domestic financial sector at that time.
“No market-driven and competition mechanism existed,” he said.
Bringing in more overseas funds to boost Xiamen’s economic development was also a key target for the local government, since the city’s GDP was small at the start of reform and opening-up, he added.
In 2017, Xiamen’s GDP registered 435.12 billion yuan ($66.8 billion), up 7.6 percent year-on-year, data from the city’s statistics bureau showed in January. By contrast, the figure in 1980 was just 640 million yuan, according to media reports.
In the financial services sector, the Xiamen SEZ had 44 banking institutions, 153 securities companies and 38 insurance companies by the end of 2017. Meanwhile, the sector’s value reached 49.1 billion yuan in 2017, accounting for 11.3 percent of Xiamen’s total GDP, domestic industry site financialnews.com.cn reported.
Back in 1980, Xiamen had merely five banks and one insurance company, with the value of the financial sector standing at 9.1 million yuan, comprising 1.4 percent of that year’s GDP, according to the report.
Keeping up with the development of Xiamen’s SEZ, the city’s financial sector has also experienced robust growth, from small to big, from single to diverse and from low-level to high-level, Li Weiping, head of the Xiamen branch of the People’s Bank of China (PBC), was quoted as saying in the report. The PBC is the country’s central bank.
Strong innovation
As the first JV bank in China, the XIB pioneered in reforming and improving Xiamen’s financial services concept and standards, thus attracting more foreign capital to the coastal city.
These moves have greatly boosted local economic development, enhanced the city’s investment environment and strengthened the confidence of foreign investors, said Huang.
Japanese-funded Panasonic Manufacturing Xiamen Co and ABB Xiamen Switchgear Co, the first JV company founded by Switzerland-based ABB in China in 1992, were among the list of early customers that XIB provided financial services to, which are still running to this day.
The bank also innovated in introducing lower-counter, more intimate customer service desks to clients. Before that, there were handrails between bank staff and clients.
The earliest investment in the bank came from Luso International Banking in Macao, as well a listed company in Hong Kong.
And in 1991, XIB increased its capital by introducing international financial organizations and strategic investors from developed countries and regions, being the first domestic bank to do so.
Its overseas shareholders included Japan’s Shinsei Bank with 10 percent, the Asian Development Bank with 10 percent and US-based Sino Finance Group Co with 5 percent.
“By introducing such overseas capital, XIB has forged a core competitiveness different from the old Stateowned banks. This is a market-driven mechanism, which includes a market operation concept, modern corporate governance structure, advanced risk control concepts and so on, paving the way for the development of the domestic banking system later on,” Huang noted.
“Furthermore, many domestic banks were enlightened by XIB’s introduction of foreign capital, which sparked great interest on the Chinese mainland, as they began to follow the trend by seeking investment from overseas,” he said.
Due to the restriction on JV banks in doing yuan retail business in China while having just ended its historical role as the “test ground” for financial reform, XIB transformed into a Chinese city commercial bank in 2013.
An open future
China has been gradually opening up its financial sector, with authorities pledging to ease caps on foreign ownership in Chinese banks and financial asset management companies “within a few months,” Yi Gang, governor of the PBC, said at the Boao Forum for Asia back in April.
Chen Wenhui, vice chairman of the China Banking and Insurance Regulatory Commission, was quoted as saying in a report by the Xinhua News Agency in May that opening-up in the banking and insurance sectors will help optimize the allocation of financial resources, so that they can better serve the real economy.
There is still ample room for the domestic financial sector to gradually open up while the process also indicates China’s increasing confidence in the sector’s development and its business environment, Huang believes.
Wang Yong, an associate professor at Xiamen University, told the Global Times on Monday that as a strategic city for the China-proposed Belt and Road (B&R) initiative, Xiamen should connect more with countries and regions along the routes by making more ambitious moves in the financial sector.
Also, Xiamen has natural advantages in developing financial cooperation with Taiwan, Wang said, noting there are currently about 4,000 Taiwan-headquartered enterprises in Xiamen that need bank loans.
“Although the official exchange channel between the mainland and Taiwan has been suspended, the cross-Straits nongovernmental financial communications won’t stop,” he said, adding it is inevitable that Taiwan’s economic development will be integrated into the B&R initiative.