Starting today, the Chinese government will review applications from banks that could allow foreign competition to transact in Chinese currency (Citigroup is one of eight major foreign banks seeking approval).
Can the U.S. make big profits in China? Not everyone thinks so. On “Morning Call” Liz Claman took a closer look with Gerard Cassidy, Analyst at RBC Capital Market--who says there's big opportunity, but a lot of risks – and Ted Fishman, Author of China Inc. who thinks profits are not likely.
Ted Fishman said China, when it first introduces new business has a clear objective. They want to learn from those businesses so their own industry can become champions locally. American banks have great technology and China wants that technology.
Other challenges Fishman sees in China include little due diligence and almost no contract enforcement. But he says American (and European) banks need to be there; they need to dip their toe in the pool so to speak, because it's such a huge market. Profits are at least 6 years down the road.
Gerard Cassidy agrees. He added the start up phase will be costly for all banks that made application today. But, the opportunity is enormous in the retail side - particularly with credit cards and other consumer products. Cassidy thinks the sophistication of the Western banks will be attractive to the Chinese consumers who will find they make their lives more enjoyable.
Cassidy also said the only big name that's well positioned right now in China is Citigroup because opening a local depository in China will cost about $125 million. On it's equity base, that's not a significant amount of money for Citigroup.
Banks that have applied for retail licenses are Citigroup Inc. of the United States, Japan's Mizuho Corporate Bank, Britain's HSBC Corp. and Standard Chartered PLC, Dutch bank ABN Amro Holdings NV, Singapore's DBS Bank and Hong Kong's Bank of East Asia and Hang Seng Bank, according to the Web site of the China Banking Regulatory Commission.
HSBC, Citigroup and others including Bank of America Corp. have spent billions of dollars to prepare for the market opening, buying stakes in Chinese partners and setting up credit card and other ventures.