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5 White Paper on the Business Environment in China
2008, these gures were reported to have grown to 196 banks year, banks have posted declines in their net interest margins
from 46 countries having established 237 representative as authorities have cut benchmark interest rates, funding costs
o ces38 and 75 banks from 25 countries having opened 116 have risen and demand for credit has cooled.”44
branches.39
In early 2006 a personal credit rating system was rst
By June 2009, 26 foreign banks had fully incorporated established to be used as a standard assessment for consumer
in China;30 A 2010 KPMG study indicated that 37 foreign credit risk.
banks had incorporated on the Mainland by the end of July
that year.41 A study released one year later by PwC saw the China’s consumers were reported to represent
number of foreign banks incorporated rise to 40.42 approximately $2.5 trillion worth of household deposits in
2008.40 e total assets of the banking industry furthermore
Despite growth in the number of incorporations, however, grew by more than 17 percent between 2003 and 2007 to
several challenges remain that are unique to foreign banks. An reach $7.6 trillion.45 Pro ts by the industry were reported as
earlier PwC study in 2010 had concluded that “While [foreign $41 billion in 2007.46 In 2009, total banking assets on the
banks] have continued to be proactive in seeking out new mainland were reported to reach 78 trillion yuan (roughly
opportunities, they remain challenged by policy constraints $11.9 trillion),41although the proportion of those held by
that dictate the pace, scope and direction of their market overseas lenders reportedly shrank from 1.84 to 1.71 percent
penetration… Meanwhile, the domestic banks continue to even as their total assets grew.47
add to their service o erings as they steadily evolve towards
more broadly based multi-service institutions… In contrast, Having surveyed the challenges and opportunities, foreign
the foreign banks are required to navigate a much narrower banks have predominately decided that their future is bright
space… Reasons for [foreign banks’] lack of growth in market in China, according to an Ernst & Young survey of “38
share included an un-level playing eld, economic factors and overseas lenders.” “Gradual and successive nancial reforms”
a limited product o ering.”43 are ngered as an expected source of “modest improvement”
over the next three years.48
Nevertheless, “Against this challenging operating
environment, the participants continue to believe strongly “Foreign lenders see a loosening of controls on interest rates
in the future opportunities of the Chinese nancial services as the key to rebalancing China’s economy, even as the move
market.”43 may have a short-term e ect on their pro tability, the survey
showed,” writes BloombergBusinessweek. “ e Communist
PwC’s follow up study reported that the 42 interviewed Party, which pledged in November to give markets a “decisive”
foreign banks collectively intended to expand their workforce role in the economy, in July eliminated a oor on lending
in China by 53 percent by 2014, and that both further reform rates. It has yet to remove a ceiling on deposit rates.”48
and the future transition to a convertible Renminbi were
causes for optimism in the Chinese nancial services market’s e insurance industry remains one of China’s least-
future potential.42 penetrated by foreign rms, a fact which is by some (but
not all) attributed to particularly long approval processes
As of 2011, the foreign banks collectively held 1.83 percent for activities including opening new branches and o ering
of the Mainland banking market.42 specialty products.49 By December 2009, 52 foreign insurers
had established operations in China.47
Although “In 2010, combined pro t for the foreign
banks rose 24 percent, slower than China’s major local banks Similar to the banking sector, foreign insurers are
[and in] 2009, most foreign banks saw their pro ts slide,” a reportedly “struggling due to a joint-venture requirement
KPMG report showed that the tables had turned only a year on life insurance, unequal treatment, and stricter regulations
later: “combined net pro t at the China operations of 33 and solvency rules following the nancial crisis,” issues which
foreign banks more than doubled in 2011 from a year earlier, reportedly led to “only three out of 24 foreign life insurers
outstripping the pace of pro t growth at local banks.”44 [making] a pro t in 2008.”47
Nevertheless, foreign banks “are still niche players, e discrepancy between insurance penetration and density
accounting for less than 2 percent of the banking sector’s total in China and in other industrialized markets is illustrative of
assets […]in part because foreign banks have been allowed to the strong growth potential for the Chinese insurance market.
serve individual Chinese savers only since 2007, an opening It was reported in 2007 that China’s insurance penetration
that launched a wave of investment by the banks in branches was 2.9 percent with a density of $70.50 In comparison, the
and personnel.”44 average penetration in industrialized markets is reported at
9.2 percent with an average density of $3,642.51
Furthermore, the strong pro t growth may be di cult to
maintain since “banks [2011] bene ted from China’s e orts to Reportedly, foreign rms’ market share in life and property
tighten lending to curb in ation and surging property prices. insurance amounts to 5.652 and 1 percent53, respectively.
With loans harder to get, banks were able to charge more. is
A 2009 PriceWaterhouseCoopers study noted that no new
218
2008, these gures were reported to have grown to 196 banks year, banks have posted declines in their net interest margins
from 46 countries having established 237 representative as authorities have cut benchmark interest rates, funding costs
o ces38 and 75 banks from 25 countries having opened 116 have risen and demand for credit has cooled.”44
branches.39
In early 2006 a personal credit rating system was rst
By June 2009, 26 foreign banks had fully incorporated established to be used as a standard assessment for consumer
in China;30 A 2010 KPMG study indicated that 37 foreign credit risk.
banks had incorporated on the Mainland by the end of July
that year.41 A study released one year later by PwC saw the China’s consumers were reported to represent
number of foreign banks incorporated rise to 40.42 approximately $2.5 trillion worth of household deposits in
2008.40 e total assets of the banking industry furthermore
Despite growth in the number of incorporations, however, grew by more than 17 percent between 2003 and 2007 to
several challenges remain that are unique to foreign banks. An reach $7.6 trillion.45 Pro ts by the industry were reported as
earlier PwC study in 2010 had concluded that “While [foreign $41 billion in 2007.46 In 2009, total banking assets on the
banks] have continued to be proactive in seeking out new mainland were reported to reach 78 trillion yuan (roughly
opportunities, they remain challenged by policy constraints $11.9 trillion),41although the proportion of those held by
that dictate the pace, scope and direction of their market overseas lenders reportedly shrank from 1.84 to 1.71 percent
penetration… Meanwhile, the domestic banks continue to even as their total assets grew.47
add to their service o erings as they steadily evolve towards
more broadly based multi-service institutions… In contrast, Having surveyed the challenges and opportunities, foreign
the foreign banks are required to navigate a much narrower banks have predominately decided that their future is bright
space… Reasons for [foreign banks’] lack of growth in market in China, according to an Ernst & Young survey of “38
share included an un-level playing eld, economic factors and overseas lenders.” “Gradual and successive nancial reforms”
a limited product o ering.”43 are ngered as an expected source of “modest improvement”
over the next three years.48
Nevertheless, “Against this challenging operating
environment, the participants continue to believe strongly “Foreign lenders see a loosening of controls on interest rates
in the future opportunities of the Chinese nancial services as the key to rebalancing China’s economy, even as the move
market.”43 may have a short-term e ect on their pro tability, the survey
showed,” writes BloombergBusinessweek. “ e Communist
PwC’s follow up study reported that the 42 interviewed Party, which pledged in November to give markets a “decisive”
foreign banks collectively intended to expand their workforce role in the economy, in July eliminated a oor on lending
in China by 53 percent by 2014, and that both further reform rates. It has yet to remove a ceiling on deposit rates.”48
and the future transition to a convertible Renminbi were
causes for optimism in the Chinese nancial services market’s e insurance industry remains one of China’s least-
future potential.42 penetrated by foreign rms, a fact which is by some (but
not all) attributed to particularly long approval processes
As of 2011, the foreign banks collectively held 1.83 percent for activities including opening new branches and o ering
of the Mainland banking market.42 specialty products.49 By December 2009, 52 foreign insurers
had established operations in China.47
Although “In 2010, combined pro t for the foreign
banks rose 24 percent, slower than China’s major local banks Similar to the banking sector, foreign insurers are
[and in] 2009, most foreign banks saw their pro ts slide,” a reportedly “struggling due to a joint-venture requirement
KPMG report showed that the tables had turned only a year on life insurance, unequal treatment, and stricter regulations
later: “combined net pro t at the China operations of 33 and solvency rules following the nancial crisis,” issues which
foreign banks more than doubled in 2011 from a year earlier, reportedly led to “only three out of 24 foreign life insurers
outstripping the pace of pro t growth at local banks.”44 [making] a pro t in 2008.”47
Nevertheless, foreign banks “are still niche players, e discrepancy between insurance penetration and density
accounting for less than 2 percent of the banking sector’s total in China and in other industrialized markets is illustrative of
assets […]in part because foreign banks have been allowed to the strong growth potential for the Chinese insurance market.
serve individual Chinese savers only since 2007, an opening It was reported in 2007 that China’s insurance penetration
that launched a wave of investment by the banks in branches was 2.9 percent with a density of $70.50 In comparison, the
and personnel.”44 average penetration in industrialized markets is reported at
9.2 percent with an average density of $3,642.51
Furthermore, the strong pro t growth may be di cult to
maintain since “banks [2011] bene ted from China’s e orts to Reportedly, foreign rms’ market share in life and property
tighten lending to curb in ation and surging property prices. insurance amounts to 5.652 and 1 percent53, respectively.
With loans harder to get, banks were able to charge more. is
A 2009 PriceWaterhouseCoopers study noted that no new
218
