Financial innovation takes off at Chinese banks

The opening up of the financial sector in China to competitive pressure ups the requirement on banks to stay ahead of the curve by adopting innovative solutions

Despite headwinds emanating from deleveraging and an ongoing liquidity squeeze, China’s banking industry garnered inspiration by adopting a number of innovations in 2018, usually on the back of governmental support of fintech development.

For example, Shenzhen, one early adopter of blockchain, is proactively encouraging the use of distributed ledger technology. In September 2018, a Greater Bay Area trade finance blockchain platform was jointly launched by Shenzhen Fintech Research Institute, Bank of China, China Construction Bank, China Merchants Bank, Ping An Bank, Standard Chartered and BYD.

On this platform, BYD’s suppliers are able to obtain banking facilities more easily from local banks. According to informed sources, this pilot program also allows trade assets including receivables, letter of credits and forfaiting to be sold to offshore markets.

“The People's Bank of China hopes that emerging technology can change the current financial ecosystem,” says a senior executive at a Taiwanese bank familiar with the matter in an interview with The Asset.

In Shanghai, a thriving financial hub where over 300 large local corporates and multinational corporates are based, financial innovation is also considered a top priority for banks facing fierce competitive pressures. In particular, regulation with regards to cross-border finance is generally more relaxed within the Shanghai Free Trade Zone (FTZ). 

As of the end of 2018, the number of corporates in Shanghai FTZ who had used cross-border renminbi pools reached 898, with a total transaction volume of 1.46 trillion yuan (US$220 billion). Ninety-five treasury entities of multinational corporations in Shanghai FTZ had been granted authorization to manage their group FX transactions on a pilot basis. 

“Without innovation, you cannot survive. Simply relying on price competition is not a sustainable strategy,” says a branch manager of a large Chinese bank in Shanghai. “Through a perfectly competitive market, Chinese financial institutions can grow and connect with international practice.”

Product innovation also transformed the commodity markets in China, which accomplished two major milestones during 2018. In March, the first renminbi-denominated crude oil future was launched in Shanghai Futures Exchange. In May, Dalian Commodity Exchange broke new ground by introducing overseas investors to the steel ore futures market. Bank of China and HSBC are the futures margin depository banks for the two respective products at Shanghai Futures Exchange and Dalian Commodity Exchange.

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Date

15 Mar 2019

Channel

Treasury

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