For most sovereigns there is a direct correlation between their banks and performance on the football pitch: both are lousy. Not so China. The world's fastest growing major economy failed to qualify for the World Cup but everyone wants a slice of its banking action. Standard Chartered has formed an alliance with Agricultural Bank of China. HSBC is returning to its Asian roots, having relocated its chief executive to Hong Kong and opened its 100th mainland Chinese branch. Now it is eyeing a Shanghai listing.
Alas, foreign banks are bit players. Standard Chartered, with 150 years in China under its belt, made just $280m before tax there, less than the annual increase in profits in developed markets. HSBC made $1.6bn, respectable enough but flat on the previous two years and less than an eighth of the global take on an underlying basis. Overall, foreign banks saw their lending fall in the first half of 2009 – a year in which domestic banks increased assets by a quarter. Their meagre market share of 2 per cent is expected to stay flat this year.
That is partly explained by the pincer movement of stronger local competition on one side and stiff regulations on the other. Following next month's listing of AgBank, China will boast four big partially privatised banks that are sprucing up their product offerings. Foreign banks, meanwhile, have to fight for funding (hence much is still funnelled in from the parent bank overseas) and meet stringent requirements such as a 75 per cent loan-to-deposit ratio by next year. Small wonder, then, that the option of buying stakes in Chinese banks is back on the agenda. This has proved a swifter route to riches than sweating hard-earned assets, although distressed sellers of such stakes, including Royal Bank of Scotland, that barely washed their faces, may disagree. HSBC, however, has seen its $4.5bn of investments in China swell in value to $20bn over the past few years – putting 2009's $1.6bn profits firmly in the shade.