Foreign Bank Entry In China:Determining Factors, Developing Strategy And Influences On Local Banks

Since the middle of1990s, foreign banks have apparently sped up their pace of international expansion, the large scale, fast speed, and deep influence of which have caught wide attention from different sectors of our society. Meanwhile, either from the perspective of the foreign bank or the host country, the way in which the foreign banks expand has been greatly changed, which can be seen in the following aspects:a majority of foreign banks have began to enter developing countries while in the past they only enter developed countries. What is more, the reason, relative efficiency, way, strategic planning and customer selection of the entrance have showed distinctively new features.With china joining the WTO, since2006, the legal framework for foreign banks entering china has almost been accomplished. From then on, the foreign banks could enjoy all the interests the same as our native citizens, and there on longer existing area and customer restriction when going about RMB business. Meanwhile, our native banks have also been greatly changed, they have gradually changed from the traditional specialized banks into modern commercialized banks, from the large state-owned banks monopolizing the whole market into the competitive coexistence of state-owned banks, middle and small joint-stock banks and foreign banks. In the way of regulation, it has also been changed from the strict restriction in the past into gradual deregulation. Under such background, doing some research on the determining factors, strategic development and the influence foreign banks have on our local banks and thus coming up with some solving strategies respectively have some theoretical and factual significance in deepening the revolution of banks in China as well as preserving the healthy development of banks.In order to make thorough researches in the determining factors, development strategy of the entrance of foreign banks and the influence they have on local banks by following the structure practices in most of similar papers as "literature review-present situation-theoretical model-case study-empirical study-conclusions and implications". According to the above structure, we would finish our paper in eight chapters. In chapter two, we will comb the relevant and representative literature review about the reason, competitive strategy of the entrance of foreign banks and the influence the foreign banks had on host countries’banking system and thus analyze the disadvantages and tendency of the current research. In chapter three, we will do some research on the current developing situation of foreign banks in our country, during which we will analyze their main style, development stage and main features of their development. In chapter four, we will do an empirical study of the determining factors of why foreign banks enter china basing on the eclectic theory on international production. We will also testify some of the relevant theory through research and thus come up with the following two ideas, merely the pursuit of profit is the main force why foreign banks entering china and strategic investment will become the crucial way in which foreign bank enter the financial industry of china. In chapter five, we will do a general analysis of the developing strategy of the foreign banks in our country, we will mainly do researches on the foreign banks’orientation, entrance, competitive, and localization strategy as well as strategy innovation. In chapter six, we will do some research on the strategic aim of the foreign banks entering china and the influence they have on our local banks as well as do a thorough comparative analysis of the competitive advantages of foreign banks over local ones according to the mainstream banks’developing rules and trends. In chapter seven, we will analyze the strategic initiatives of our local banks with the background of foreign banks entering our market. We also come up with the idea that we will promote the strategic transformation of our local banks from the strategic perspective. In chapter eight, we will choose the construction bank of china bringing in bank from America as a case study and discuss the motivation. features of the entrance of America Bank and their influence on China Construction Bank.Finally, according to the above analysis, we have made the following conclusions.(1) The main determining factors of foreign banks entering China are profit-orientation. The degree of opening of our financial industry and the relevant financial policy has greatly influences the entrance of foreign banks.(2) In the short term, either from the scale of asset or the share of the market, foreign banks have not yet made substantial impact on our local banks. However, in the long term, the strategic aims and business models will greatly influence the developing trends of our local banks.(3) Jointing stock has become the important way in which the foreign banks entering the Chinese financial industry. As for this entrance method, we should distinguish whether the foreign banks are the real strategic investors or the financial investors. As for our local banks, the strategic investors are our stable strategic partners in a long time and we are in a cooperative and win-win relationship with them. However, as for the financial investors, they only take profits as orientation. Neither will the financial investors promote the development of our local banks, nor will they have the impetus for further expansion. What’s more, they will try their best to reduce the capital investment and thus have negative influence. Banks in china should pay attention to the long time value orientation of those banks which enter our market through stock joint and thus make sure solving the balance problem of profit conflicts.Then our paper could successfully reach the following points of innovation.(1) This paper has analyzed the influence of the foreign banks entrance from the long term and short term respectively. With the restriction of the market scale, the field of the business and the resource of the customer, the foreign banks have not owned the power to have face to face competition with our local banks; as a result, in the short term, the foreign banks will enter Chinese market by combining with the local banks of china. However, in the long term, with the deepening of gradual innovation, the opening degree of Chinese financial market has become deeper and deeper, the degree of the competence in local market has become fiercer and fiercer, and thus the strategic initiative and profit model will gradually and deeply make impact on our local banks.(2) The research on the influence of foreign banks’entrance on our local banks should be included in the framework of the progressive innovation of financial industry in our country. Because of the progressivity of the financial innovation, there exists the phenomenon of financial restriction in our financial market. What’s more, this financial restriction has its inner logic and historical origin. Only when we have thoroughly analyzed the influence of financial restriction on foreign banks in our country, can we have a comprehensive grasp of the impact of the foreign banks’entrance on our local banks.(3) Strategic transformation will be the state-owned commercial banks’developing tendency under the background that foreign banks have penetrated into china in large scale. The strategic transformation of our local banks mostly can be embodied into two aspects. The first one is the profit model will be greatly changed. In the way of customer acquisition, the traditional large customer-oriented banks will gradually been transformed into all supply customer oriented with key enterprises as their dependence. As for profit model, the traditional way of taking interest spreads of deposit and loan as the main profit source will be gradually transformed into taking intermediary business and investment bank business as the main profit source. The second aspect is the expansion strategy of the local banks will also be greatly changed. With the gradual enhancement of comprehensive management ability and risk management level, our local banks will further accelerate the pace of internationalization under the fierce domestic market competition. During this process, the acquisition will be the important theoretical basis for the internalization of our local banks.