Citigroup Encounters Hurdles to Retail-Banking Plans

This article appeared in the Wall Street Journal on November 10, 2006. This article is about the banking market in China and the ongoing issue of foreign banking in China.

Citigroup (the article’s main focus) and other non-China based banks are facing difficulties gaining access to the market. Foreign banks have been forced to do business through Chinese banks and have yet to deal with individuals. China has been slowly taking steps to allow these banks to open branches and put ATM’s on their soil in order to reach their potential “bankable” population of 300-400 million individuals. However, new rules and regulations have slowed this progress, if not set it back a step. It is very informative article on a topic that could have a huge effect on the way banking in China is going to be done in the upcoming years.

Here are some questions to think about while you read the article.

What are you interpretations for the future based on the paragraph on the first page?

How do you think allowing foreign banks to reach individual customers in China is going to effect the economy? How might it impact, in general, the way business is done?

Is Citigroup acting too aggressively at trying to reach individual customers? Is this a good strategy? Will other banks follow or continue to do business through Chinese banks?

What do you think about Citigroup being called “Hua Qi”?

What do you think about China’s five year plan?

Does China seem to be as open as they say they are to letting foreign banking in? Are they delaying it to be as safe and conservative as possible? What are your thoughts on the three pages of requirements to be met before individual customers can be reached?

Submitted by Danny Allustiarti

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3 Responses to Citigroup Encounters Hurdles to Retail-Banking Plans

  1. Chris Carr says:

    Good post and article.

    One of the interesting things to me about the intersection of “guanxi” and business in China is that most people believe you MUST have good local guanxi to survive there. As a general rule that is probably true.

    Yet, some wisely point out that there is sometimes an advantage to NOT being part of a local or industry guanxi network — e.g., you may be considered untainted and this is no small accomplishment in China (to prevent this Imperial China forbade officials from serving in their own home province and the Communist Party has similar rules) (source: see Joseph Wang comment here on the China Law Blog).

    In recent years Western banks have had some success by forging alliances with the government in Beijing against the local banking networks (same cite/source). However, this articles suggests that this alliance may not be enough to win the day and/or is starting to swing in the other direction.

  2. Brian McCarthy says:

    I expect there are similar articles for many different industries. The theme is probably the same: the need for the Chinese government to regulate foreign expansion in their country, and the patience required by the foreign corporations to conduct business in China.

    The approach the Chinese government is taking toward foreign banks could be labels as conservative, but the regulations make sense. Just looking at the numbers of potential banking customers, both individual and corporate, and the numbers of foreign banks (more than 70) trying to get into China, there is a need for controls.

    There are the regulations on foreign ownership of domestic banks (maximum of 25% ownership). There are regulations on access to various segments of customers via the 5-year timetable (customers with foreign currency, then Chinese companies with yuan, finally Chinese consumers with yuan). There is the requirement for foreign banks to incorporate locally in China. All these requirements may take time, but as the Chinese government stated, these processes are required to “strengthen and improve the supervision and management of foreign banks” and to “protect Chinese depositors until a deposit-insurance program can be established.” Again, given the large scale of operations, rapid or loosely controlled expansion of foreign banks would be detrimental.

    From Citigroup’s perspective, lets start with the name of the company in China, Hua Qi. The article translates the name to American Flag. Many Chinese companies and people probably have a positive, monetary association with America. The association is probably one of the perceived wealth and prosperity in America. The name appears to be a good selection by the Marketing group.

    Beyond the new brand, Citigroup’s strategy is appropriate. To undertake such an enormous project requires patience. You have to keep taking small steps that make a difference before large gains can be realized. By increasing visibility through the ATM machines, the brand will be more recognized, especially in a country that is so open to electronic banking. The ATM strategy is a low cost and available way to increase presence and brand recognition. In addition, working though other available channels such as offering complex deposit products to wealthy Chinese customers is another way to increase the word of mouth of Citigroup’s offerings.

    Many companies in the banking and other industries are going to want to do business in China. The companies that have the ability to be patient and play by the rules will benefit in the long run.

  3. Though I am not typically a big Guanxi fan, in high regulation, big ticket areas like banking, I have to make an exception.

    I am fascinated by these big foreign banks going into China, knowing they are going to lose a ton of money for years to come. I have talked with a banker friend of mine at one of the big banks that is already in China and he just keeps telling me, “credit cards.”

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