Chinese banks set for greater international role

China Construction Bank Chairman Wang Hongzhang said in September that he is prepared to spend up to $15 billion (11.6 billion euros) on a major acquisition in Europe.

His comments raised the prospect of a Chinese bank using its cash-rich status to take over one of the banking sector's big names.

"Some of the banks in Europe have been put up for sale. Now we are looking for the right choice," he told the Financial Times.

With that sort of money at his disposal, Wang could almost buy the troubled Royal Bank of Scotland, 82 percent owned by the British government, and with a market capitalization of $17 billion; or comfortably acquire Commerzbank, also part owned by the German government, valued at $9 billion.

Yet May Yan, director and head of Chinese banks' research for Barclays in Hong Kong, does not believe Chinese banks have the management capability yet to take over a major bank.

"I think Chinese banks will make acquisitions but I am not sure they can buy, for example, Royal Bank of Scotland. It is just too big a task," she says.

"They just don't have the international experience to manage such a bank and culturally it would be very difficult, too."

This is something the Chinese banks are also fully aware of.

Wang Yongli, vice-president of Bank of China, said recently that while Chinese banks had the cash resources to make acquisitions they still faced difficulties.

"One of the biggest challenges for Chinese banks going abroad is the unfamiliarity with laws in overseas markets," he said at the recent 6th Annual China Bankers Forum at the CEIBS campus in Beijing.

"There lie huge differences among different countries' laws, taxation and financial regulations. Chinese banks have to deal with many unfamiliar regulations when going overseas."

One of the largest acquisitions by a Chinese bank so far has been in Africa with ICBC paying $5.6 billion for a 20 percent stake in South Africa-based Standard Bank.

Before the economic crisis China Development Bank bought a 3.1 percent stake in Barclays to help it finance its failed bid for ABN Amro and has since lost money on the deal with the slump in the UK bank's share price.

Ba Shusong, deputy director general at the Development Research Center of the State Council, believes mainland banks will continue to make overseas acquisitions but many of these will be nearer to home rather than in Europe and the United States.

"There must be more in the future since mergers and acquisitions are a much more effective way for the banks to expand their international business than building up branches from scratch," he says.

"I think Hong Kong will be a favorable starting point for many mainland banks wanting to expand overseas. They are more familiar with the Hong Kong business environment, particularly its laws and regulations. Hong Kong also enjoys a less rigid banking regulatory system."

Going international will be a major step change for the Chinese banks since they will not just face the domestic banking concerns they are familiar with but problems on a global scale.

Zhu Min, deputy managing director of the International Monetary Fund, told the Beijing bankers forum that Chinese banks would have to up their game to meet these.

"Only if one is fully prepared for the constant changes in the global financial market can one win against global competition," he said.