Why Chinese bank internationalisation is gradual - an historical institutional perspective

Abstract

Chinese banks have opted for slow, organic growth in their overseas network expansion rather extensive bank acquisitions, but their future impacts on international banking and financial systems are expected to be large. This paper follows four interlinked paths: First, it sketches an institutional logics perspective on banking systems in China, Japan, UK and the US in historical context of the international financial system, then [second] looks at challenges to the incumbent over that history. The US challenged the UK in the first half of the 20th century; Japan challenged the US in the last quarter of the 20th century. Both of these challenges provide insight into China’s modern challenge. Third, using historical process-tracing and inference, it places Chinese international banking expansion into this context. And fourth, it suggests how Chinese banks will expand internationally by ‘following the flag’. In this process, both Chinese banks and international banking practices will co-evolve.

Keywords:

• Financial institutions
• China
• Chinese state-owned banks
• international banking
• varieties of capitalism
• institutional complementarity
• Guanxi and renqing [关系和人情]

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Quoted in Yang, 2014.

2 ICBC also acquired 80% of Standard Bank's Argentina operations2011 for roughly US$600 million.

3 Qualitative asset transformation takes short-term, liquid, demand deposits and transforms them into longer-term, less liquid loans, securities investments, direct investments and other financial instruments.

4 Theoretical bases for hypernorms in financial contracting and integrative social contract theory are similar although they were developed independently. Donaldson & Dunfee (2002: 1861) integrate the two: “In the “Chinese walls” quandary, both institutional evolution and technology are at work… as investment banking functions and brokerage functions have mushroomed into giant, multi-functional firms, the lines that separate those functions have blurred.”

5 Feis (1964: 87) beautifully sums with “The smallness of England, the concentration in the same circle of those possessing influence or prestige, the responsiveness to group opinion which ruled, the personal honesty and discretion of English officialdom, the acceptance by the financial world of a high standard of honor…”

6 “借新還舊”

7 In such a situation a Chinese banker or client may say, “I am short [owe] renqing to you” [我欠你人情].

8 Quoted in Selmier, 2013b: 747.

Additional information

Notes on contributors

W. Travis Selmier

W. Travis Selmier II, Ph.D. is a Visiting Scholar in the Indiana University. He worked in international investments for 17 years. He was named to Barrons Top 100 Portfolio Managers list in 1998. A language nut, Travis reads 6 languages, and has won three of America’s top Fellowships to study Chinese and Portuguese. As a former Wall-Streeter, he visited more than 60 countries researching investments and economics. He was Co-Director of the Investment Management Academy and a visiting clinical professor in Finance at IU’s Kelley School of Business from 2008-2011.

His research interests include language economics, politics and institutional dynamics of international financial markets, property rights of financial goods, East Asian banking and CSR in mining industry. His publications appear in Business & Politics, Business Horizons, International Review of Economics & Finance, Journal of International Business Studies, Oxford Research Encyclopedia of International Studies, Review of International Political Economy, and elsewhere.