A gathering place for people for at least 4000 years, Chengdu – literally translated as 'becoming capital’ – is the only major city in China not to have changed its name or location in the past two millennia. Today, with a population of 14 million people, the capital of the Sichuan province is positioning itself as the financial hub of western China, but it is facing stiff competition from neighbouring cities, including Chongqing and Xi’an.
The city's financial district, Chengdu Financial City (CFC), has already attracted 61 financial institutions, double that of Chongqing, and investment beyond Rmb40bn ($6.2bn) with 13 financial institution headquarters, nine exchanges, 36 other financial agencies and three administrative authorities. Of the 61 institutions, 20 have come from outside the region.
Two local banks, Bank of Chengdu and Chengdu Rural Commercial Bank, expect to open new headquarters in the CFC in 2014. Agreements have also recently been reached with two major hotel chains, Waldorf and Marriott, both of which are planning to build hotels in the CFC complex. Along with the rebuilding of a river tunnel, which will improve transport links in the city, it is hoped that the presence of these international chains will help attract yet more financial institutions to the city.
Taking root
CFC's general manager, Zhao Fang, hopes to attract more foreign names in the future. With nine exchanges, including the China Beijing Equity Exchange and the Chengdu Agriculture Equity Exchange, already operating in the city, along with seven major banks, the outlook is positive.
Covering 5.1 square kilometres, the CFC is vast. At the start of 2012, nine projects were completed providing 0.9 square kilometres of floor space and a further four projects providing 0.5 square kilometres of floor space are scheduled for completion by the end of the year. The CFC has set a target of housing 500 financial institutions, 400 professional services agencies and 200 facilities service agencies by 2020, a far more ambitious target than any of its competitors.
Western China is becoming increasingly attractive to investors because of its lower wage costs compared to eastern provinces
Western China is becoming increasingly attractive to investors because of its lower wage costs compared to eastern provinces and bankers see even more opportunities in the area as a result. Mao Zhigang, chairman of Bank of Chengdu, which is listed 35th in China and 406th in the world in The Banker’s Top 1000 World Banks for 2012, believes that the government is providing the west with increased financial support. While the country’s economic growth rate may fall below 8%, the overall the growth rate in the western part of the country is expected to remain higher, at 12%.
Expansion plan
Mr Zhigang says that Bank of Chengdu has not only maintained steady growth in 2011, but is expected to see 20% growth in its business in 2012 as the bank mines a deeper customer base outside its traditional region. In 2011, the bank saw total assets, loans and deposits rise by 20%, 20% and 10%, respectively, with a Rmb2.5bn capital increase bringing its capital adequacy ratio up to a healthy 15%. Non-performing loans were down to 0.62% and net profits after tax rose to Rmb2.4bn.
Malaysia’s sixth largest bank, Hong Leong Bank – which owns a 20% stake in Bank of Chengdu – has helped redirect the bank's strategy. In the past, the bank's largest profit contribution came from the government, but Mr Zhigang says that the focus is now on personal lending, especially to small and medium-sized enterprises (SMEs) and this is where future growth will come from. This also plays to Hong Leong’s strengths too.
In 2011, Bank of Chengdu opened offices in two major Chinese cities, the south-west city of Chongqing and the capital of the Shaanxi province, Xi’an. in a bid to further bolster its 120-branch domestic network, it is now considering expansion into the south-west capitals of Kunming and Guiyang, with the former's proximity to Vietnam making it a particularly attractive prospect as it could help the bank break into international markets.
Vietnam is not the only international market that the bank is looking to tap. Mr Zhigang believes that it would be valuable to open a representative office in Malaysia, with the help of Hong Leong. He is also considering the possibility of opening an office in Hong Kong to take advantage of the increasing internationalisation of the renminbi.
Gaining ground
While Bank of Chengdu and Chengdu Rural Commercial Bank – the 25th largest bank in China and 296th in the world in The Banker’s Top 1000 World Banks 2012 – are the largest established players in the Chengdu vicinity, there is a new name emerging in the region. Nanchong City Commercial Bank (NCCB) is based in neighbouring Nanchong and is only 7% government-owned. With a network of 50 branches as well as three village banks, this new player has grown dramatically in recent years
Chairman of NCCB, Guangwei Huang, predicts that the bank's total assets will expand by one-third this year to reach Rmb100bn. According to The Banker’s Top 1000 World Banks ranking, NCCB is the 79th largest bank in China and 760th largest in the world.
Established in 2001 through the merger of 10 urban credit cooperatives and with a mandate to help SMEs gain access to finance, NCCB has emerged as a specialist financial institution. Not only do SMEs account for 75% of its total loans, the loan business constitutes less than 40% of profits and the bank has a special social responsibility component whereby 1% of net profit is donated to social welfare, which includes various charities.
According to Mr Guangwei, the bank’s performance is “very good”, with return on assets of 1.7%, return on equity of 40%, a capital adequacy ratio of 17% and a cost-to-income ratio of a very low 22%. He believes that the bank’s specialist structure, strengths in electronic banking and clear objectives have enabled it to become profitable, with high-quality assets.
In 2012, NCCB plans to add a further two to three branches in neighbouring Sichuan provinces and south-west China. As with many banks in the region, it is positioning itself to take advantage of the internationalisation of the renminbi. NCCB has grown rapidly in the past 10 years, and although it is still relatively small, it expects to sustain growth of between 30% and 50% over the next decade.
Spirit of the west
According to a report by national newspaper China Daily, western China now accounts for 29% of the country's population, or 380 million people, making it a substantial part of the emerging economy.
The Sichuan region, of which Chengdu is the capital, is the largest economy in western China, with gross domestic product (GDP) of Rmb2102.7bn – more than double that of Chongqing, the second largest province by GDP – and garners the most inward investment from foreign companies, with $54.4bn registered capital, compared to $34.9bn in Chongqing. Such figures bode well for the financial centres in the region, and make it likely that the competition between them will get even more intense in the future.
