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 This industry-country profile has been compiled by Tony Zhang, Trade Commissioner, Austrade Beijing.
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| (Last updated: 28 Aug 2008)
Trends and opportunities
The market
The Chinese financial services market changes continually and rapidly. It is a very broad industry and includes banking, insurance, fund management, stock broking, financial planning and more. Due to this, it is difficult to cover every trend and opportunity and keep information up to the minute. If you are serious about doing business in this sector and would like the most up-to-date information it is recommended you contact the Austrade team in China.
The stock market
Since China’s accession to the World Trade Organization (WTO) in 2001, the financial service industry in China has progressively opened. By the end of 2006, China implemented its WTO commitments in the financial services sector and removed or lowered many market entry barriers. Its strong economic growth, fast growing middle class and sophisticated investors, high saving rate and booming capital market, has become a compelling long-term target for foreign financial firms.
China’s Shanghai and Shenzhen Stock Exchange were established in December 1990 and June 1991, respectively. By the end of 2007, there were over 1,500 companies listed on these two exchanges with a total market value of RMB32 trillion. China’s stock market had performed extremely well over the last couple of years. For example, the SSE Composite Index was at 998 in June 2005 and reached its highest level of 6,124 in October 2007. However, by the end of March 2008 the market had dropped almost 50 per cent from its highest point.
This booming stock market created several of the world’s biggest companies:
- ICBC became the world’s largest commercial bank with a market value of US$300 billion.
- China Life became the world’s largest insurance company with a market value of US$250 billion.
- CNPC was listed on the SEE on the 5 November 2007 and became the largest public company in the world, surpassing Exxon Mobile, with a market value of over US$1 trillion.
(As at end of 2007)
Fund management
Because of the booming stock market, China’s fund management industry has grown dramatically in recent years. In 1998 there were less then 10 fund management companies managing less than RMB500 billion. By the end of 2007, total assets under Chinese management fund reached RMB3.27 trillion, with an average annual return over 100 per cent in 2007. The best performing fund, Hua Xia Selected Blue Chip Fund, had an amazing return of 226.24 per cent.
The fund management industry is considered the most open sub-sector in China’s financial service industry. There are 59 fund management companies in China, among which 29 companies are joint ventures with partners from 29 different countries. The Commonwealth Bank of Australia (CBA) established a joint venture, the First-State Cinda Funds Management Co., Ltd, with Cinda Asset Management Company in August 2006. The joint venture launched its first A-share fund, the China First-State Cinda Growth Leaders Equity Fund, in March 2007. The fund was sold out within four hours of its launch, raising over RMB8.3 billion.
Qualified Foreign Institutional Investors (QFII) and Qualified Domestic Institutional Investors (QDII) are two licences key to foreign financial firms who want to move into the Chinese fund management industry. Foreign financial firms who want to invest in RMB denominated stocks and fixed income products need to acquire a QFII licence first.
The QFII licence was first issued to UBS Ltd and Nomura Securities in May 2003. By the end of January 2007, 46 foreign financial firms received QFII licences, including AMP Capital Investors Limited. In December 2007, the China State Administration of Foreign Exchange (SAFE) increased the quota of QFII to US$30 billion.
The QDII licence first issued in May 2007, allows Chinese banks, insurance companies and fund management companies to invest in the overseas financial market. By February 2008, 21 commercial banks, 14 insurance companies and five fund management companies had obtained a QDII licence with a total quota of US$42 billion. However, there are different restrictions on different QDII licence holders. For example, QDII banks can only invest in fixed income products in limited foreign markets, while QDII fund management companies can invest in stocks of many more foreign markets.
Banking
Over the past 10 years, China’s banking industry has gone through significant reforms and growth forming a complex banking system. In the last couple of years, the opening up of China’s banking sector has been realised and gained increased international recognition and interest.
At the end of 2006, China’s banking system consisted of 19,797 banking institutions, including three policy banks, five state-owned commercial banks, 12 joint-stock commercial banks and 113 city commercial banks. The industry had 183,897 outlets, employed 2.7 million staff, and a total asset of RMB43.95 trillion.
To honour its WTO commitments, China has lowered entry barriers to its banking sector for foreign banks and made the market more attractive and competitive. By the end of 2006, 74 foreign banks from 22 countries and regions had opened 200 branches and 14 locally-incorporated institutions in 25 cities in China. Meanwhile, another 186 foreign banks from 41 countries and regions had opened 242 representative offices in 24 cities in China.
The top six countries and regions with the most foreign bank branches in China were:
- Hong Kong – 99
- USA – 26
- UK – 21
- Japan – 19
- Singapore – 17
- France – 15
By the end of March 2008, only ANZ and Westpac had branches in China, while CBA invested in two city commercial banks and NAB invested in a trust company in China.
Opportunities
China’s financial service industry is still in the process of shifting from one that was centrally-planned to a market-oriented industry. This transformation took place less than 30 years ago but the most progress was made in the last eight years or so and will continue for several decades.
During this process, there were and will be many opportunities for Australian companies to enter the Chinese financial services market. The following are some of the sub-sectors where Australia has a competitive advantage in the global market:
- Fund management, including superannuation, REITs
- Wealth management/financial planning/private banking
- Credit risk assessment and management
- Banking products design, including mortgage, financial planning, tax advice, etc.
- Risk management for general insurance
- Community rating in health insurance
- Professional services to the financial service industry
- Security system and fraud prevention
- Financial services related software products
Regardless of competitive advantage, all Australian financial services companies entering the Chinese market will face a number of challenges.
The biggest challenge for Australia is its profile. Australia is perceived by most of the Chinese as an agricultural and mining country with beautiful beaches. It is not widely known that almost 80 per cent of our GDP is from the services industry and we have a sophisticated financial services industry. Therefore, before selling any financial services to the China market a lot of profile-lifting work needs to be done.
Competitive environment
One of Australia’s challenges in the China market is the fierce competition from financial firms of other countries, such as the USA, UK, Japan, Singapore, Korea, and in Europe. Some of these financial firms have been operating in China for 20-30 years and continue to aggressively promote their brand and image. They are well-known by the Chinese financial service industry and when opportunities come up Chinese financial firms will naturally think of them than Australian companies.
To succeed in the China market, Australian financial services companies, in particular newcomers need to be patient, proactive and persevere.
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