China Banks Swarm To Europe With New Moves
This week’s China visit by British Prime Minister David Cameron is stirring up a flurry of activity from the big 4 Chinese state-run banks, 3 of which have just announced new tie-ups in Europe. The move by Chinese banks into Europe isn’t all that surprising, since the EU is China’s biggest trading partner and London is one of the world’s top 2 financial centers alongside New York. What is slightly surprising is the suddenness of this flurry of activity, which I suspect is at least partly driven by a directive by Beijing for the nation’s big 4 lenders to go global and internationalize China’s currency, the yuan.
The latest headlines have Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) and China Construction Bank (HKEx: 939; Shanghai: 601939) making new moves in Britain, while Bank of China (HKEx: 3988; Shanghai: 601988) has announced a new tie-up in Germany. Noticeably absent from the list is the fourth of the big 4 state-run lenders, ICBC (HKEx: 1398; Shanghai: 601398), though China’s largest lender has traditionally been the country’s most aggressive globally and may simply be taking a pause from all of its other recent activity.
Let’s start with AgBank, which has announced a new tie-up with the London based Standard Chartered Bank (HKEx: 2888; London: STAN) to offer yuan clearing services in Britain. (English article) The tie-up comes less than 2 months after China announced a landmark deal to let British-based investors buy up to 80 billion yuan ($13 billion) worth of Chinese stocks, bonds and other financial instruments, expanding a program for offshore investors beyond Hong Kong for the first time. This tie-up looks at least partly aimed at serving new demand from that deal, since British investors will now need yuan to buy Chinese financial products.
Meantime also in Britain, China Construction Bank has applied to open a branch in London, following the relaxation of rules that would allow such a move, according to a media report citing an unnamed source. (English article) Observers believe Britain loosened its tight rules for banks looking to set up branches in London earlier this year in a specific bid to lure in Chinese lenders, part of a larger plan to make UK Europe’s first yuan trading center.
Lastly, Bank of China has announced its own new tie-up in Germany with Deutsche Boerse, operator of the nation’s main stock exchange. (English article) The German stock exchange operator didn’t give much detail in its announcement, except to say the partnership is part of a drive to develop the offshore yuan market in Europe. Perhaps the tie-up will soon be followed by a deal for Germany similar to the one in Britain, which would allow German-based investors to buy a limited number of Chinese stocks, bonds and other financial products.
These latest moves follow a similar series of other actions by the big 4 banks in Europe, including recent reports that ICBC was in talks to buy the Europe-based forex and commodities trading unit of its African partner, South Africa’s Standard Bank. (previous post)
So, what is an investor to make of all this? My quick answer is that this sudden drive by the Chinese banks into Europe is almost certainly being driven by Beijing, as part of China’s campaign to internationalize the yuan. Look for more similar moves in the year ahead, potentially including one or two acquisitions of European banks and other financial services providers.
Of the 3 newly announced deals, I like AgBank’s the most, as it lays the foundation for a partnership that could benefit both sides in China and other global markets. I’ve previously said that AgBank, traditionally the least active of China’s big 4 lenders globally, was showing recent signs of making some interesting and well-conceived moves internationally. This latest move could continue that trend, perhaps making AgBank a lender to watch for the future.
Bottom line: A new flurry of moves by 3 of China’s 4 top lenders in Europe reflects Beijing’s campaign to internationalize the yuan, with more similar moves likely in the next year.
Related posts:
