Analysis chinese banking industry systems, processes and products Essay

China’s rapidly developing economy is dependent on a banking industry which is controlled by the state. The four public banks of China and the People’s Bank of China have a strong hold over the country’s financial system. The advent of China in WTO in 2001 and globalization has led to a felt need for transformation in the Chinese economy to integrate it with the global economy. The financial sector will need to support this change. An assessment of the state of the Chinese banking industry at present and its future growth is therefore essential. Ideally this can be achieved by benchmarking a Chinese bank and a European Bank, for which purpose a case study of Bank of China and HSBC, London has been carried out. The aim of the research is therefore to undertake an analysis of the Chinese banking systems, processes and products through a case study of the above mentioned banks while the objectives of the research indicate assessment of the overall state of the Chinese banking industry, evaluate implementation of various processes and systems and highlight the areas for growth. A deductive – inductive approach with emphasis on case study has been adopted for the research. Apart from extensive secondary research through literature survey, a detailed questionnaire has been administered to 40 clients across a wide cross section of personal and corporate customers of Bank of China and HSBC, London which has formed the key primary resource for the research. A review of the research sources and questionnaires has revealed that Bank of China has been able to quickly adapt itself to the changing requirements of a globalised financial environment and is providing both personal as well as business banking services to meet its customer’s requirements. HSBC which considers itself as the World’s local bank is providing a complete package of services to the corporate as well as personal client and has been successful in implementing the same throughout the World. Its initial forays into China have also underlined the success story. The quality of service in both the banks was seen to be similar, however HSBC provided better follow up and also more services on the internet than Bank of China. The growth trajectory of both the banks indicates that, while HSBC is attempting to grow throughout the World; Bank of China is growing primarily within the Chinese banking system. There are a number of areas for improvement identified in the research which could well be undertaken by Bank of China to include greater efficiency and better customer service, improvement in technology and customer follow up and exploitation of niche areas such as credit cards. The entry of foreign banks will see greater competition in the Chinese banking sector. The need for Chinese banks to adopt global practices is also underlined and it is anticipated that the entry of more global banks as HSBC in China will provide the impetus to this growth. ANALYSIS CHINESE BANKING INDUSTRY SYSTEMS, PROCESSES AND PRODUCTS: A CASE STUDY BANK OF CHINA AND HSBC, LONDON Chapter 1 – Introduction China is a rapidly growing economy which is considered as a model for emerging countries all over the World. The dynamism of an economy lies in an efficient and effective financial system led by the banking sector. The impact of the banking sector on economic growth in China and its contribution to public life has been a matter of debate over the years. China has a banking system which is controlled by the State and thus has a very large influence on the economy. Exclusively controlled by the central government, the four state banks and People’s Bank of China have a very strong hold over the financial system both internally and externally. (China’s Economic System, 2004). However the rapid growth of China towards a socialist market economy has been affecting the banking sector in various ways and Chinese banks have undertaken measures to enhance their efficiency and contribute effectively to the economy. China’s entry into the WTO in 2001 has also necessitated adoption of liberalized norms in line with the global banking and financial industry. To what extent China has been able to adapt these new practices and how these are affecting or likely to affect the growth of the Chinese economy is an issue of great relevance. As China’s economy gets increasingly integrated with the global economy, its financial markets will have to support this union. It is therefore essential to assess the state of the Chinese banking industry at present and its trajectory of growth in the future. A case study approach to this issue is considered relevant for which Bank of China and HSBC, London are selected for review of the systems, processes and products to provide an insight of the financial needs and their fulfillment today and tomorrow. Bank of China is one of the principal banks in the country; it is one of the four banks which are owned by the State in China. (About Bank of China,. 2006). It has been a key central bank of China which has carried out international exchange as well as provided funds and been a point for foreign trade in the country over a period. It conducts a wide variety of services including commercial banking, insurance as well as investment banking. It is one of the largest banks in Asia and has been placed at the 18th position by the Banker Magazine in 2005. (About Bank of China,. 2006). It also has a large overseas presence in 27 countries. The systems, processes and practices followed by the Bank of China would be a good indicator of the state of the Chinese banking industry in both its internal and external dimensions. HSBC is an epitome of a modern bank. Based in London, the Bank had its origins in provision of finance for trading with China in the 19th Century. After China adopted a nationalist communist economy and banking system, HSBC’s presence in the country was limited. However the bank has now retuned with a vigor and strives to make inroads in the highly competitive financial sector where banks with a state monopoly are said to enjoy unprecedented advantage. The Bank is also taking benefit of its old legacy and is already earning profits to the tune of $ 161 million for the first half of 2005. (Schuman, 2006). HSBC in some ways can be seen to be a competitor to the Bank of China, though its reach within China is limited to only 20 branches. (Schuman, 2006). The investments made by HSBC in Chinese financial sector are reported to be $ 4 billion and include almost one fifth stake in China’s fifth largest bank, Bank of Communications and its second largest insurance company, Ping An Insurance with which the Bank of China too has many contracts. A comparative analysis of BOC and HSBC would thus provide us an effective understanding of the state of the banking industry in China in all its operational facets. The dynamic nature of the research will entail application of a deductive-inductive approach which in practice is adopted by a number of similar research projects keeping in view the importance of both qualitative and quantitative findings.