Foreign Banks and the Market for Commercial Banking Services

Abstract

Foreign banks have become increasingly interested in China’s commercial banking sector. Being one of the largest banking markets in the world, China — with its high savings rate and continued high economic growth — has turned into a key market for them. But have foreign banks also become important actors for the Chinese market? Have they been able to grow into successful commercial players in China? Undoubtedly, foreign banks have faced an unusual and challenging market environment: the banking market is a hybrid halfway between a state-controlled command economy and a modern financial market, has pronounced institutional problems, and is characterised by both a peculiar constellation of domestic actors and a large role for regulation in market development. This chapter shows that the market entry of foreign banks in China has been a story of restraint and limitations with regard to business scale and scope and it provides some arguments for the claim that foreign banks are likely to be comparatively small yet well-noted players for the foreseeable future.