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Time to stop complaining about Chinese banks

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By Lorraine Cushnie
17 Nov 2016

It has been the year where Chinese banks went from challenger to champion in Asian investment banking. Growing almost as fast have been the complaints from international rivals. Bankers at global firms may not like the methods but Chinese banks are liquid and they are here to stay: it’s time to adapt.

GlobalCapital Asia has just spent six weeks talking to senior bankers as part of the pitch process for our annual regional awards. As we start reflecting and deciding the winners, the strongest topic emerging this year has been the impact of Chinese banks and Chinese capital.

The rise of Chinese lenders in Asian investment banking is not a new theme. From the establishment of CICC in 1995 to the push overseas by the big four, global and pan-Asian banks have long been aware that a new challenger was in their midst.

But 2016 was the year where the challenger became the champion. In loans, equities and M&A, it’s Chinese banks that dominate the top of the league tables.

A few things came together to make this year the perfect storm for Chinese banks. The overseas ambition of China Inc was far more aggressive than in previous years. M&A activity has been the key driver but whether it was buying a marquee business, launching an IPO or diversify their funding, this year Chinese companies were more than happy to turn to one of their compatriot banks to arrange a transaction.

This is a shift from previous years where the global banks were still able to win mandates based on the trusted adviser model, drawing on their greater international and structuring experience.

But the more sophisticated Chinese banks have leant from the international rivals and are offering more complex solutions. And China Inc has been less concerned about advisory and more about liquidity. So when ChemChina was looking to buy Syngenta and needed a loan, it turned to China Citic Bank International which was able to underwrite the $12.7bn facility at a price that most international banks could not compete with.

This trend has meant international banks have missed out on the year’s biggest mandates from Asia.

As a result, there are plenty of complaints from bankers that Chinese banks are not following ‘good’ capital market practices. Pricing loans at unrealistically low levels and filling order books with ‘friends and family’ investors skews pricing and hurts the broader market, they argue.

Speak to capital market practitioners at Chinese banks and they point out they are using their strengths to serve their clients and what they can offer is ample liquidity and unrivalled access to Chinese corporates and retail investors.  And if it’s normal for a US company to pick a US bank as a lead, why wouldn’t Chinese companies use a Chinese bank?

But what is clear from the awards pitches is that the best banks are the ones that have recognised Chinese capital is here to stay and the only way to survive is to adapt. The survival plans are far from uniform. For some that has meant trimming the Asian operations and accepting that while Asia may not be profitable on a standalone basis, the ability to advise Chinese clients on their global ambitions through a worldwide network is profitable for the bank as a whole.

For others, it has been using the strength of their franchise to source new liquidity and new opportunities. That might be working closer with their private or commercial bank, pushing to diversify their geographic footprint as well as working harder to seek out opportunities that still need complex solutions and pay the fees that go along with that.

But the best banks are the ones that have tried to harness Chinese capital to support their own ambitions. After all, having strong liquidity is normally a good thing for capital markets.

It may change. As Basel rules begin to bite and if Beijing decides to restrict activity, Chinese lenders may have to adapt their strategy. But with China on track to be the world’s largest economy in the next five years and the Belt and Road scheme encouraging more offshore activity, Chinse banks and the liquidity they bring are now a fixture of Asia’s capital markets and beyond.

It’s time to stop complaining. The market has changed and banks will need to change with it. 

By Lorraine Cushnie
17 Nov 2016