Chengdu, the dynamic capital of Sichuan Province in south-west China, is known for many things beyond its spicy food and cuddly pandas. Historically, the city was founded in 316BC and in 1023AD it was the first city in the world to issue paper currency, the Jiao Zi, in the Song dynasty of ancient China.
Today, Chengdu is not only a major trading and communications hub, but it is also positioning itself as the core engine for the development of financial services in western China.
Chengdu Financial City
Chengdu sees itself as the financial hub for western China and is developing into a world-class metropolis. With an estimated population of 14 million, Chengdu has already attracted a wealth of international financial institutions, including Citigroup, HSBC, Standard Chartered Bank and BNP Paribas to name but a few.
As the biggest trade centre in western China, Chengdu provides market access to the whole province and a population of 250 million in six provinces and municipalities in south-west China. The city ranks first among those of western China for the scale of foreign-invested commerce; of the 40 world top 250 retailers that operate in China, 15 have established a presence in Chengdu.
To achieve its huge ambitions as the economic engine of western China, the authorities in Chengdu have embarked on a massive redevelopment known as Chengdu Financial City (CDFC). The CDFC will be to western China what Pudong is to Shanghai and what the Financial Street is to Beijing, according to Zhao Fang, general manager of Chengdu Financial City.
The State Council has approved Chengdu as western China’s technology, business, finance, transportation and communications centre, the Urban and Rural Area Synthesis Development Reform Pilot District, and the state’s free-trade zone. Also in 2011, the State Council announced that the Chengdu-Chongqing economic zone will be western China’s economic centre in five years.
New banking district
The Chengdu Financial City is a huge new central business district in the south of Chengdu covering five square kilometres, with the Jinjiang River crossing through it. It aims to be western China’s largest agglomeration of financial institution headquarters.
The project is being constructed on virgin land and the first phase of construction (520,000 square metres) is already finished. The development is a relatively short drive from the existing city centre and Chengdu's Tianfu Square, which contains a huge statue of former Communist Party chairman Mao Zedong.
Financial authorities such as the China Banking Regulatory Commission (CBRC), the Finance Affairs Office of the People’s Government of Chengdu, as well as institutions such China Minsheng Bank, Bank of Chengdu and the Chengdu Agriculture Equity Exchange, have already moved into the district.
While the overall CDFC project makes London’s Canary Wharf look miniscule by comparison, phases two and three still have some way to go. The second phase has 24 plots in which half are under construction, with the rest to be completed by 2014.
Phase three involves premium office space as well as more than 10 five-star hotels, exhibition centres, shopping malls, entertainment centres and top-class residential accommodation. The planned six-star hotel is currently a small barren island in the river, but not for much longer.
In the early 1980s, this writer stood on the Bund in Shanghai and looked across to Pudong covered in rice paddy fields. Some 30 years later, much of the Chengdu Financial City area looks similarly green and agricultural. But just as Pudong developed seemingly overnight into a megacity, the CDFC now looks set to do the same.
Funding the development
But who will drive this new financial dynamo? Two Chengdu-based banks, Chengdu Rural Commercial Bank and Bank of Chengdu, are both seizing the growing opportunities in the region and both plan to move to new headquarters in the new CDFC area by 2014, with both currently finalising building design plans.
Chengdu Rural Commercial Bank, which was ranked 32nd largest bank in China in The Banker’s 2011 Top 1000 World Banks listing and 430th in the world, has demonstrated extraordinary growth in recent years, with Tier 1 capital and pre-tax profits up 208.1% and 110.3%, respectively, in 2009, followed by growth of XX% and XX%, respectively, in 2010.
The bank's chairman, Fu Zuoyong, explains that, along with his bank’s 2010 growth achievements, his bank’s non-performing-loan ratio dropped significantly to 1.04% in 2010 and provisioning coverage had increased significantly to a sizeable 242.4%, more than doubling 2008 coverage.
With the bank’s capital adequacy ratio at a healthy 12.53%, Mr Fu sees Chengdu Rural Commercial Bank as a profitable local bank with its biggest shareholder a state-owned enterprise with a 31% stake. But major plans are afoot. Mr Fu plans to expand into a regional bank this year and into a national bank in 2012. Having reached the necessary capital target, the bank plans to open two new branches in Sichuan Province this year after opening a township or county bank in Zigong last year. This adds to the bank’s structure of 28 branches and 628 network offices.
Mr Fu also sees a reformation in the shareholding structure with the capital expected to rise to Rmb10bn ($1.54bn) by the end of October and possible foreign shareholder interest. Taiwan-based Taishin Holdings signed a co-operation agreement with Chengdu Rural Commercial Bank late last year and is understood to be looking for further co-operation. Focused on specialised markets, including small and medium-sized enterprises, Mr Fu believes Chengdu Rural Commercial Bank has the staff and network to take full advantage of the huge regional growth potential.
Bank of Chengdu
Bank of Chengdu, the 35th largest bank in China and 447th in the world, according to The Banker’s 2011 global ranking, is also bullish about growth and regional expansion. Formed from 44 urban credit co-operatives in 1996, Bank of Chengdu, according to chairman Mao Zhi Gang, saw total assets leap from Rmb5bn in 1996 to Rmb150bn ($23bn) at the end of 2010, with net profits reaching Rmb1.6bn ($246m).
With a low loan-to-deposit ratio of 55.45%, a strong capital adequacy ratio of 13%, plus a low non-performing loan ratio of 0.725% and large loan coverage ratio of 360%, Mr Mao believes Bank of Chengdu has healthy financial ratios and plenty of room for expansion.
In 2009, the bank moved outside its 120-branch network in Chengdu and established a branch in neighbouring Chongqing. A new branch was expected to open in Xian in June along with two others by year's end. Following a capital raising in 2007, the bank’s shareholding became increasingly diversified with the stake of the Chengdu local government reduced from 72% to 27%.
International links
Three foreign banks have shown interest in Bank of Chengdu, and the bank chose Malaysia-based Hong Leong Bank as its 20% shareholder. In January 2010, the bank formed a 51/49 consumer finance joint venture with the Malaysian bank and Mr Mao believes the relationship with Hong Leong has been a “good match”.
While Mr Mao complains his bank has fewer outlets than giants such as Agricultural Bank of China, he notes that his bank’s business is now far more diversified than it was and is expanding in terms of corporates and SMEs. He adds that with the Chengdu Financial City, where his bank expects to move its headquarters in 2014, and Chengdu’s strengths as a regional hub for transportation, communications and trade, Chengdu is much stronger for business than surrounding capitals, including cities such as Chongqing.
In commenting on recent moves by the People’s Bank of China and the China Banking Regulatory Commission to tighten reserves and other ratios, Mr Mao acknowledges the tightening has had some influence on reducing lending, but believes the strengthening of risk management has its advantages too, and “the CBRC squeeze is still OK”.
