When the Chinese government headed towards financial openness towards the world, it worked on attracting foreign banks and other entities that work in the field of financial services. Emirati banks realized this and it could be clearly evident in the Emirati Mahreq Bank’s 2009 initiative, when it began to provide banking services linked to the markets of Chinese banking services. The bank cooperated with the China UnionPay cards and launched a new service allowing the union cardholders to use its ATMs across the world. This measure made Mashreq Bank the first Emirati financial institution and the first global banking institution to recognize the UnionPay cards, which at the time were estimated at 8.1 billion cards issued by 196 Chinese banks.
Within this same context, in June 2012, the National Bank of Abu Dhabi (now called First Abu Dhabi Bank) opened a representative office in the Chinese city of Shanghai as part of a plan. NBAD at the time stated that their “aims to expand in the Far East and comes in line and in support of the role which the UAE plays as a bridge for trade between the East and the West and as a tool to facilitate the process of attracting investments and sealing commercial deals between the UAE and China.”
In September 2012, Emirates NBD announced opening a representative office in the Chinese capital Beijing. It said this comes within the context of its commitment towards operating companies in China and Gulf Cooperation Council countries aiming to expand their work in the markets where the bank is active. In March 2017, the Emirati Union National Bank announced it would open its first branch in China. It also declared that it attained the approval of the People’s Bank of China to transform its representative office into a branch in Shanghai, adding that it is looking into expanding in China in accordance with regulations there.
Superiority of the Chinese Banking Sector
Such approach may raise various questions about China’s economic significance and chances of survival or expansion in the future. Being present in the Chinese market in the meantime is not only necessary for Emirati, Gulf and Arab banks, but it is also necessary for all banking and financial institutions across the world. The Chinese banking market has the biggest chances of growth and expansion in the world and this grants baking institutions operating in China – whether Chinese or other – a chance to achieve the highest returns for their investments.
The Chinese banking sector rapidly expanded during the past years and it outperformed other banking sectors in the Eurozone, the US and Japan. In 2008, the Chinese bank assets were equal to Japan’s and were less than American assets by about half. It did not exceed one quarter of the size of bank assets in the Eurozone. However in 2016, Chinese bank assets hit USD 33 trillion, thus becoming the world’s biggest bank system, versus USD 31 trillion for the Eurozone – which ranked second worldwide – USD 16 trillion for the US and USD 7 trillion for Japan.
China’s Economic Transformation
The transformations that the Chinese economy has witnessed are the most important transformations the global economy has seen during the past half century. They are not only limited to quantitative aspects, but also include qualitative aspects. This paved way for producing promising investment opportunities in the Chinese banking sector; thus motivating Emirati banks to head towards China.
On the quantitative level, the Chinese economy was ranked the second-largest economy after Japan in 2010. China became the world’s largest exporter of goods and the second largest importer of goods. It became the fifth largest exporter of commercial services, and the third largest importer of commercial services.
The Chinese economy is the world’s largest recipient of foreign direct investment and the second-largest source of outward foreign direct investment after the US. China now has the largest foreign exchange reserves worth USD 3.2 trillion.
The Chinese economy’s growth slowed in the past few years as it reached 6.5 percent a year after it was estimated at 10 percent annually. Yet, China’s economy is still one of the world’s fastest-growing economies. It can also be said that it is an emerging market economy; therefore, it still has great opportunities to achieve more growth.
According to qualitative indicators, the Chinese economy is changing from an economy that is based on centrality and the state’s growing role in economic activity into a liberal economy that is heading towards implementing laissez-faire policies. This is in addition to building their own productive capabilities, focusing on local markets and encouraging investments and national companies to compete in global markets.
Openness of the Chinese Banking Sector
The developments, which the Chinese economy witnessed, have increased the country’s needs for financial and banking services. This is why the Chinese government worked during the past few years to develop the national banking sector’s infrastructure aiming to improve the banking and financial services required for the transforming economy. These services are represented in funding economic activities inside China or settling transactions between the Chinese economy and other economies across the world.
The Chinese government, thus, worked to reform its monetary and banking policy so it becomes closer to policies adopted across the world. It took up reform measures to attract foreign banks and financial institutions and obliged major banks in the country to commit to the regulations of the Basel Committee on Banking Supervision and its rules about organizing international banking transactions. China also reformed state-owned banks and adopted flexible policies regarding the flexibility of interest rates. It also decreased the reserve requirement ratio for banks and paved way for foreign investment in the banking sector. Internationalizing the Yuan was another important measure to reform the Chinese financial and banking sector. This move reassured foreign banking institutions intending to enter the Chinese market.
The UAE’s Centrality as China’s Partner
The Chinese government’s transformation of opening its market and national banking sector for foreign banks and financial institutions is one of the most important transformations in this context. It is a transformation through which Emirati banks entered the Chinese market and which will allow them to further expand their investments, especially considering the centrality of the role, which the UAE plays on the regional level in the Middle East and North Africa from the perspective of economic and commercial relations with China. The value of commercial trade between China and the UAE reached around USD 55 billion by the end of 2015. According to some estimates, this value increased to USD 60 billion in 2016. China is ranked as the UAE’s second biggest trading partner while the UAE is the largest market for Chinese exports in the Middle East and North Africa. In 2016, the UAE’s share of the total non-oil Arab-Chinese trade exchange reached around 29 percent. Its share of non-oil Chinese-GCC trade exchange reached around 47 percent during that same year.
Finally, these givens - whether on the level of the Chinese economic development or on the level of bilateral relations between the UAE and China – and the centrality of the UAE as China’s partner in trade in the Middle East, make the presence of Emirati banks in China justified and necessary. This presence’s significance will increase in the future and enable these banks to improve their international status on one hand and enhance economic, commercial and investment relations between the UAE and China on another.
