France, the preferred European destination for Chinese banks

Chinese companies have significantly increased their investments in Europe in recent years, particularly in the areas of production and R&D, and on a continental scale, according to Business France, France is the first host country in number of Chinese investment projects, ahead of Germany and the United Kingdom.

Despite the uncertain context linked to the health situation which weighs on international trade, China has thus carried out 53 projects and created 1,679 jobs in 2020 in France. Île-de-France and Auvergne-Rhône-Alpes are the two regions that host the most investment projects. Currently, China is the leading Asian country investing in France.

Foreign direct investment (FDI) from China and the internationalization movement of the renminbi (RMB, the Chinese currency) offer significant opportunities for Chinese banking institutions to internationalize.

Company France (2021)

From a historical point of view, the Chinese financial sector has been strongly controlled by the state since 1949. The stability of the political and economic environment in China over the past 40 years has thus provided the necessary conditions for the development of the sector. banking. Economic growth and capital accumulation play an important role in the development of financial markets.

China’s entry into the World Trade Organization (WTO) in 2001 prompted it to implement reforms to improve banking governance and the restructuring of its system to better adapt it to the system. international finance.

The Brexit boost

For its part, France offers an attractive environment for Chinese banks wishing to set up in Europe to integrate into the global system. Due to the United Kingdom’s exit from the European Union, some companies in the London financial sector have decided to relocate their headquarters to Paris.

American banks (JP Morgan, Goldman Sachs, Citibank, Bank of America), English banks (Barclays and Standard Chartered) or other nationalities such as National Australia Bank and the Arab Banking Corporation have created and reinforced their Parisian teams in order to reduce negative impacts of Brexit on their sector. More than 440 financial services companies in the UK have reacted to Brexit in one way or another by relocating part of their activities, staff or legal entities to the European Union.

France appears in this context as a favorable destination. All these changes have in fact made it possible to increase the place of Paris in the banking and financial fields in Europe. For Chinese banks, this ecosystem close to the largest international banks promotes their development from an international perspective and allows them to operate on a global scale.

In addition, France has made a very positive commitment over the past 10 years to the subject of the internationalization of the RMB. Some French banks, such as Crédit Agricole, are setting up mechanisms to support French and European companies in carrying out their commercial transactions with China in RMB. France is thus the leading offshore RMB center in the euro zone.

According to figures released by the Chinese Embassy in France in 2018, nearly 50% of transactions between France and China are paid in RMB. The RMB is the fourth most active currency for global payments by value, with a share of 2.70%. after the US dollar (40.51%), the euro (36.65%) and the pound sterling (5.89%). Currently, more than 70 central banks or monetary authorities around the world include the RMB in their foreign exchange reserves. Paris now occupies a leading position in the euro zone on this RMB market.

According to the Chinese Embassy in France, nearly 50% of transactions between the two countries were paid in RMB in 2018.

By offering in particular support in administrative procedures, the search for premises and business opportunities, Paris has shown its flexibility and its willingness in relation to other European financial centers to attract foreign banks whose objective is to consolidate its position as a financial center in the European Union.

To date, the Bank of China, the Bank of Communications, the Export and Import Bank of China, the Construction Bank of China and the Industrial and Commercial Bank of China (ICBC) are located in Paris. These are large state-owned commercial banks that play a vital role in China’s financial sector.

The establishment of these banks in France aims in particular to integrate the global banking system while allowing them both to improve their governance and to restructure their system. In addition, Chinese banks also want to provide financial services to French companies (in particular for the CAC 40) as part of their trade and financial market operations between France and China while using their knowledge of these two markets.

Their presence in France also allows them to learn from the experience of French banks in Africa, as China is ready to play a more active role in African financial markets. Finally, this establishment allows them to improve the international position of the RMB and to better support Chinese companies in their process of internationalization in Europe and in particular in France.

Unknown to the general public

Compared to other sectors, banks are not like other businesses. In China, as in many countries, banks represent a non-freely competitive industry with a certain degree of monopoly, which inevitably affects the functioning of the market mechanism.

The low level of information disclosure by banks (from a relative point of view, in comparison with other industries), mainly for security reasons or to protect the confidentiality of customers’ financial information, creates an asymmetry in public access to information and makes it difficult to make any precise judgment on the risks and performance of financial institutions.

In France, Chinese banks are unknown to the general public. As trust and reputation are not yet well established, this does not allow, for example, to develop personal savings. For the moment, their clientele are large companies located in France that have commercial operations with China for financing projects, such as financing of acquisitions, export, IPO of Hong Kong, management treasury in RMB and its investments, foreign exchange and interest rate transactions, cash management in China or in connection with China.

To build trust and increase their reputation on the French market, Chinese banks have established a series of measures. The Industrial and Commercial Bank of China (ICBC) regularly organizes seminars in France in order to meet local companies and provide them with consulting services. It has also set up a debt capital market platform to help French companies properly prepare their operations in this area.

In addition, activities on investment opportunities in China are organized to create a link with French companies. During the health crisis, several of the Chinese banks adopted a responsible strategy with solidarity actions to meet the needs of the French public. For example, ICBC provided students with protective masks and donated 40,000 N95 respirator masks to the Pitié-Salpêtrière University Hospital in Paris to help them fight the Covid-19 pandemic. In March 2021, the Bank of China donated 1.11 million medical supplies to the French Ministry of Health to support medical personnel in the fight against the epidemic.

In addition to large companies, Chinese banks have a long-term development project which will consist of helping French SMEs to cope with the health crisis by offering them business opportunities and support to solve economic growth problems. However, due to their focus on operations in China and their lack of international experience, these banks suffer from a severe shortage of international banking management talent, particularly in key branch management positions in the stranger.

Today, it is possible to find teams that speak French, English and Chinese in Chinese banks in France. However, they still lack managers who have an international perspective, strong coordination and interpersonal communication skills in order to avoid legal risks and conflicts related to intercultural differences. The human resources policy of Chinese banks is changing over time, building local management teams by working with local executives has become a medium-term strategy.

Finally, the Chinese banking sector faces many obstacles and challenges in the process of internationalization. As with many Chinese enterprises, integrating into the international market and facing global competition is a long-term development strategy. The goal of Chinese banks is to provide comprehensive financial services to customers around the world.

As for internationalization, it allows them to learn lessons through experience, strengthen risk management, compare themselves with their international competitors, restructure their business management mechanism and improve their ability to fight against money laundering in a competitive environment.

Stéphane Monsallier, CEO, System-in-Motion (China), participated in the writing of this article.

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