The influence of Chinese banks in Europe is increasing

The Agricultural Bank of China has celebrated the opening of their London branch this Tuesday. This is the latest step in the expansion of European business operations of the ‘Big Four’ – Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB) and Agricultural Bank of China (ABC).

Earlier this year ICBC received their banking license in Switzerland. ICBC – the largest bank in the world by total assets and the most valuable bank in the world by market capitalization – has been licensed by the Swiss Financial Market Supervisory Authority Finma as a bank. Starting their European operations in the UK in 1995, it was formally established in 2013 in the City of London and has since expanded its operations from London to all major European cities, opening their latest branch in downtown Zurich.

ICBC, headquartered in Beijing, is one of the largest credit institutions in China, with more than 460,000 employees and just under 20,000 branches. The financial group was founded in 1984 and completely restructured in 2005, whereby the transformation into a private company took place. In addition to serving business and private customers with all industry-standard banking services, its core business also includes other credit card and e-banking services. The company reported revenue of £115.7 billion for the fiscal year 2016, with a profit of £32.1 billion.

The dominance of Chinese financial institutions has been growing for years. As the data service SNL Financial announced in 2015, four of the world’s five largest banks alone now come from China. Due to currency effects, European and Japanese banks fell behind. The top five also include the Agricultural Bank of China and the Bank of China.

The influence of Chinese banks in Europe, which has become increasingly noticeable and increasing for some time now, is an extension of the growing role they already play on other continents. According to Merrill Lynch, Chinese banks in Australia, for example, have already spent a considerable share of the new syndicated loans together with Japanese competitors in the recent past. In this way, they are chasing away significant market shares from down turning European banks in Australia.

The arrival of powerful Chinese banks is relatively new to the European market. The weakness of European financial services gives Chinese banks the best chance of gaining a foothold in financial markets, which are among the most competitive in the world.

Alistair Michie, Group Business and Government Advisor, speaks at the Third Annual China Global Think Tank Innovation Forum 2018

The Annual China Global Think Tank Innovation Forum gathers experts and leaders of many leading global think tanks and plays a key role in shaping government policy worldwide.

Hampton Group Group Business and Government Advisor Alistair Michie was invited to give the keynote speech at the Third Annual China Global Think Tank Innovation Forum, in his role as Chairman of the International Advisory Board of the Centre for China and Globalisation (CCG). In his speech, Alistair warned of the dangers of an increasing ‘knowledge deficit’ in the West on Asia and especially China.

In past 40 years, China has modernised and industrialised at a speed and scale unprecedented in human history. China is fast approaching the point where it will become the largest global economy, and have almost a quarter of the world’s population. However, there is an increasing ‘knowledge deficit’ between the world and China.

China’s biggest challenge is to communicate with the world. Recent Chinese government policies have aimed to support tackling this ‘knowledge deficit’, but there are very limited practical solutions. Most Chinese officials lack international experience and therefore do not understand the challenge – let alone the ability to deliver solutions.

Furthermore, teaching about Chinese culture, civilisation and history is almost totally absent from school curriculum in high income countries outside of China. This results in little motivation by students to pursue studying China at university. When China is studied at universities outside of China, the focus is on ancient liberal arts history. Yet key areas such as economic, industrial and scientific history of China or contemporary China studies are rarely focused on.

In addition, the speed of change of China makes it a great challenge for curricula and knowledge to keep pace outside of China. The boards of major businesses and organisations have not recruited members with real knowledge to advise on how to minimise risk and optimise success and explain the ‘knowledge deficit’.

Alistair called for research and practical policies that can be presented to governments world-wide to tackle the ‘knowledge deficit’. Without such action, several challenges will appear – such as the ongoing trade tensions between the US and China – founded on ignorance, misunderstanding and miscalculation.