May 24, 2017 05:00 AM

Doing Business in China: When Going With the Big Banks, Don’t Expect Relationships

(Beijing) – Westerners will tell you that banking is all about relationships, which would lead one to think China should be a superstar in the space. After all, one of China’s alternate names is the “land of relationships,” or guanxi, since a substantial amount of business here is still done through special channels based on whom you know.

But the irony is there’s really very little to be said about relationships when banking with major Chinese lenders, who treat most foreigners like a piece of stamped metal on an assembly line. Even the one Chinese company I talked to this week, a mid-sized startup with more than 100 employees, had little positive to say about working with China’s biggest national banks.

That said, banking is still the lifeblood for most businesses, meaning everyone has to come up with some kind of arrangement for critical functions from paying staff and suppliers, both at home and abroad, to funding operations. Foreign banks like HSBC and Citibank really aren’t an option, since many have limited domestic service offerings and can’t perform some transactions.

I found that out the hard way several times, including once when HSBC told me they weren’t allowed to issue credit cards and another when one of my clients said my HSBC account was inaccessible from their Chinese network. Another consulting contact told me that foreign banks also can be less attractive even for cross-border transactions, since they’re often subject to greater scrutiny by Chinese regulators, making it hard to transfer large amounts of money outside of China.

Most people I surveyed use a patchwork of arrangements, often a local bank for domestic needs and an international one for cross-border and offshore transactions. But some also noted the recent emergence of a new generation of more entrepreneurial Chinese banks that pay more attention to service and relationships, and are developing a growing ability to do cross-border business.

To understand the complex landscape, it’s useful to realize that all Chinese banks were historically government policy tools that simply executed the will of central planners in Beijing.

There’s a reason the “Big Four” banks each has a very specific name. One was devoted to industry and commerce, one to agriculture, one to construction and the fourth to foreign exchange and offshore business. Anyone unfamiliar with these behemoths will know the first one I refer to is the Industrial and Commercial Bank of China (ICBC), the second is Agricultural Bank of China, the third is China Construction Bank and the last is Bank of China.

Beyond their individual focus on different sectors, these four lenders have about as much personality as a government bureaucrat (or perhaps a bank teller is more appropriate here). Most were historically used to working with big state-owned enterprises, and have limited experience with the private sector. Their strong point is their ubiquity, since most are present in even the smallest towns, and also the fact that most people believe they are too big to fail.

That said, small entrepreneurs may have no choice but to go to these behemoths, even though they offer little or no extra service. One such businessman, who runs a small marketing company in Shanghai, said he had to go door to door asking for a banker before ICBC finally agreed. Nowadays he also uses one of the big foreign banks for his cross-border business, and is resigned to the fact that each time he visits his local ICBC branch he has to take a number and line up with all the retirees and other old-timers who still use teller windows.

The silver lining, he noted, was that service fees were quite low from the Chinese banks. After all, you get what you pay for.

At the bottom of the food chain was an entrepreneurial acquaintance who runs his boutique consulting firm in Shanghai on a completely outsourced basis. For him, cash was king and most of his transactions were conducted through his personal account at one of the big banks. I had conjured up cloak-and-dagger images of big envelopes of cash changing hands in dark hallways or back alleys. So I was slightly disappointed when he told me most of his transactions these days are made through bank transfers, which have become quite easy and can be done from most ATMs or through internet banking.

The picture gets a little better when you start moving up the food chain, as one of my contacts who has worked as CFO at several publicly listed companies observed. When you get to a certain size, he said, the banks will start to assign you a personal relationship manager whom you can call at any time and arrange to meet. But that privilege seems to come mostly from the newer generation of lenders, and he pointed to China Merchants Bank and Citic Bank as two that he personally prefers due to their higher service levels and growing international capabilities.

The one official I surveyed from a private Chinese company had a slight variation on the theme, saying that while he eschews the big four banks, he still uses a combination of mid-sized players like China Merchants and Minsheng Bank for his needs. He concurred that such midsized players offer better service, but still lack the national reach and capabilities of the Big Four. At the end of the day it’s quite a patchwork and imperfect system, but one that’s fast evolving and could someday deliver one or two new global banks that could give the likes of Citi and HSBC a run for their money.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to

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