Economic Crisis Helps China Banks Become Global Players

China’s big-four state-owned banks are taking advantage of a vacuum left by US banks trying to recapitalize to establish lending relations with major American businesses.

The first major example of a Chinese bank moving into the US lending market occurred in December 2009 when the Industrial and Commercial Bank of China (ICBC) provided a $400 million loan to GE Capital, General Electric’s financing unit which had recently exited a federal bailout program. ICBC had opened its first US branch in New York in 2008. It began cultivating relationships with US-based multinational corporations looking “to maintain stronger financial statements and support for their businesses,” according to Bi Mingqiang, general manager of ICBC’s New York branch.

As the US fell more deeply into recession, ICBC’s willingness and ability to make loans won it many new clients.

“We have established very close business relationships with many top multinational corporations since the financial crisis,” Bi said. “ICBC believes now is a good time to do more business in the United States.”

Its US clients now include Dell, UPS and Southwest Airlines.

Thanks in large part to capital-strapped western banks reining in lending since the financial crisis of 2008, Chinese banks have gone from just 4% of global banking profits in 2007 to 30% today, according to a survey of 1,000 banks released by The Banker magazine in early July.

China’s Big Four banks — ICBC, China Construction Bank Corp, Bank of China Ltd and Agricultural Bank of China Ltd — were listed among the Top 1,000 World Banks in 2012 among five banks with the largest annual profits. The author sees China on its way to achieving dominance in the banking industry.

The Big four banks’ major focus remains lending to Chinese companies expanding operations abroad. But they are rapidly building up their footprints in the US through the kinds of acquisitions that were unthinkable just a few years ago.

ICBC completed in July its acquisition of an 80% stake in BEA USA, the California-based subsidiary of the Bank of East Asia — the first time the Federal Reserve had approved a Chinese bank’s attempt to purchase a US bank. The purchase as seen as a sign of declining resistance to Chinese investment in the US.

One reason for ICBC’s success in obtaining regulator approval for the acquisition was the success of its New York branch in achieving profitability during its first year. Its loans to some Western companies during the crisis also helped the Fed regard the acquisition in a positive light.

Another factor was ICBC’s purchase in October 2010 of the US broker-dealer operations of Fortis Securities from the BNP Paribas SA for a token $1. BNP had acquired Fortis as part of its 2009 purchase of Fortis Bank of Belgium during the height of the crisis. ICBC’s US operations were seen as helping to restore financial stability in the global economy.

The Fed has also decided to let the Agricultural Bank of China to build a New York office and the Bank of China — which already has branches in New York and Los Angeles — to build a third branch in Chicago.

Maryland’s state’s Department of Business and Economic Development has approved this fall’s opening of the first US office of the Export-Import Bank of China in the World Trade Center building along Baltimore’s Inner Harbor. In the fall of 2011 Maryland Governor Martin O’Malley had reached out to the bank’s chairman Li Ruogu.

The Export-Import Bank’s Baltimore office will concentrate on developing its business, evaluating projects and building relationships within the US market while it considers providing financing to Chinese companies that are trying to invest in the US, said the bank in an announcement.

“With China having one of the world’s fastest-growing economies, it is critical that we move forward now to explore new opportunities for trade and investment, particularly in our shared strengths of science and technology,” O’Malley said.

San Francisco-based homebuilder Lennar Corp and partners are in talks with China Development Bank about $1.7 billion in capital to finance the development of the long-delayed Treasure Island and Hunters Point Shipyard-Candlestick Point housing complexes.

Local business and labor leaders have expressed support for the projects which will convert two former naval bases into 20,000 new homes, a sports arena and millions of square meters of office and retail space.

San Francisco’s city government pledged hundreds of millions of dollars in bond financing for the projects, but no private lender was willing to support them.

“We agree it is a shame that no US financial institution has been willing to lend to these projects on reasonable terms,” wrote Steve Falk, president of the San Francisco Chamber of Commerce, and Vince Courtney, executive director of the Alliance for Jobs and Sustainable Growth, in an opinion essay in the San Francisco Chronicle.

“It’s no secret that our credit markets have remained incredibly constrained since the housing crisis of 2008.

“Should we be concerned about a Chinese State-owned enterprise investing in the United States? We don’t think so.

“As everyone knows, the Chinese are growing their own economy and are looking to invest in industrialized nations. Frankly, there is no better place for the Chinese to invest their dollars than back in America and especially in San Francisco, the gateway to the Pacific,” the essay concludes.