Gree Joins Banking Rush, Likely To Flop
I seem to be using the phrase “flavor of the day” quite a bit these days, as quite a few emerging products and sectors like smart TVs and social networking services (SNS) are suddenly drawing interest from a wide range of companies in established industries. The latest sector to get my “flavor of the day” moniker is banking and financial services, with word that Gree (Shenzhen: 000651), one of China’s top appliance makers, is looking to enter the space. I have no particularly strong feelings about Gree, though I have to say that this new move looks ill-conceived and is a telltale sign that the broader rush into banking services is quickly becoming overheated.
Gree’s move into banking services follows recent moves by others into the financial services sector, many of those from the Internet sector. E-commerce leader Alibaba has led the charge, operating its Alipay electronic payments service for years before its more recent moves into a range of other new services. Social networking and gaming leader Tencent (HKEx: 700) has recently entered the fray with its own new investment product, and electronics retailer Suning (Shenzhen: 002024) is reportedly close to becoming one of China’s first non-banking institutions to get a true banking license.
At the same time, many major Internet and other companies are also forming alliances with various banks to offer financial services. The latest of those saw Alibaba last week announce a major strategic alliance with Mingsheng Bank (HKEx: 1988; Shanghai: 600016), China’s first private lender and one of its more entrepreneurial banks. (previous post) A major catalyst behind this sudden flurry is Beijing’s desire to bring more private investment into China’s banking sector, which is dominated by state-run firms that aren’t very good at financing privately owned, entrepreneurial start-ups.
While there’s certainly plenty of opportunity, I don’t really think that Gree fits the profile of the kind of company that will succeed in the space. The latest media reports say that Gree has entered talks with a regional bank in its hometown of Zhuhai, with an aim of setting up a private bank. (English article) Gree announced the talks with Zhuhai Hengqin Village Bank in a disclosure to the Shenzhen stock exchange, adding that no deal has been reached yet.
Investors weren’t too impressed with the news, with Gree shares dipping 5 percent in Thursday trade the day the reports came out. I would tend to agree with investors who might be concerned about this new private banking plan. From my perspective, Gree hardly fits the profile of companies with a strong chance of succeeding in the banking space. Whereas Alibaba, Tencent and Suning all have experience in finance through their customer payment services, Gree is a manufacturer and probably has little or no such experience.
But more importantly, Gree is a state-run company, unlike Tencent, Alibaba and even Suning, which are private and much more market-oriented. In all fairness, Gree is certainly one of the more entrepreneurial major state-owned companies, headed by Dong Mingzhu, often cited as China’s most successful businesswoman. But all that said said, at the end of the day Gree is still a big, slow-moving state-owned company.
Those state-owned credentials were on display earlier this year, when the company’s internal Communist Party secretary Zhou Shaoqiang was stripped of his posts for his lavish spending at a company banquet. (previous post) That’s hardly the kind of behavior one would expect from an entrepreneurial, market-oriented company, and it’s the kind of state-run mindset we’re likely to see in any bank that Gree may establish. For that reason, I wouldn’t hold high expectations for any future Gree-backed bank, which could ultimately end up simply draining the company’s resources.
Bottom line: A private bank being contemplated by Gree is likely to see little or no success if the plan goes ahead.
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