Opportunities and Challenges In Respect of Establishment of Trial Free Trade Zone in Shanghai and Impacts over the Banking Industry

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Opportunities and Challenges In Respect of Establishment of Trial Free Trade Zone in Shanghai and Impacts over the Banking Industry

 

ABSTRACT

This study, i.e. “Opportunities and Challenges In Respect of Establishment of Trial Free Trade Zone in Shanghai and Impacts over the Banking Industry” targets at the study of the most recent hot topic which is expected to have severe impacts shaping the China banking industry in the foreseeable future. This paper consist of four major parts:- Literature reviews of the major concepts and theories paving the way for the analysis as well as the survey implementation; Literature reviews showing the theoretical and conceptual base for the research; the analysis of the opportunities and challenges faced by the Chinese banking industry in respect of the Trial Free Trade Zone in Shanghai based on an original survey targeting at 100 staffs currently working in the Chinese banking industry; based on the conclusion made, the last part of the study will provide suggestions intended for the various stakeholders, i.e. foreign banks, Chinese domestic banks and the Chinese government.

Due to the lack of most updated data in some aspects due to various limitations, e.g. outdated government data, some discrepancies may exist as well as some other ethical issues, this study is used for a research purchase and can’t service as policy guide or any other official use or commercial use. This will also be elaborated in the study in the “ethical issues” part.

 

Table of contents

Declaration…………………………………………………………………………….2

Acknowledgement……………………………………………………………………..3

List of Tables…………………………………………………………………………………………………… 3

List of Figures…………………………………………………………………………………………………. 3

List of Charts………………………………………………………………………………………………….. 4

  1. Chapter 1: Introduction……………………………………………………………………………… 5

1.1      Geographical information of the Trial Free Trade Zone in Shanghai……….. 6

1.2      Key events & dates………………………………………………………………………….. 6

1.3      Industrial overview of banking in China……………………………………………… 7

  1. Chapter 2: Literature review……………………………………………………………………….. 8

2.1      Basic terms and definition…………………………………………………………………. 8

2.1.1     Free Trade Zone……………………………………………………………………… 8

2.1.2     Free Trade Agreement……………………………………………………………… 9

2.1.3     Culture………………………………………………………………………………….. 9

2.1.4     The finance industry……………………………………………………………….. 9

2.1.5     Commercial banking……………………………………………………………….. 9

2.2      Macro environment…………………………………………………………………………. 10

2.2.1     Political environment in China………………………………………………… 10

2.2.2     Economic environment in China……………………………………………… 11

2.2.3     Social and cultural factors………………………………………………………. 14

2.2.4     Technological environment in China………………………………………… 15

2.3      Industrial environment……………………………………………………………………. 16

2.3.1     The overall intensity of rivalry among existing players……………….. 17

2.3.2     Risk of entry by potential competitors……………………………………… 19

2.3.3     Bargaining power of buyers……………………………………………………. 21

2.3.4     Threat of substitutes………………………………………………………………. 21

2.3.5     Bargaining power of suppliers………………………………………………… 23

2.4      Concluding remarks………………………………………………………………………… 24

  1. Chapter 3: The research methodology………………………………………………………… 25

3.1      The research questions…………………………………………………………………….. 25

3.2      The research propositions………………………………………………………………… 25

3.3      The research objectives……………………………………………………………………. 25

3.4      Research approach………………………………………………………………………….. 26

3.5      Data collection……………………………………………………………………………….. 26

3.6      Sampling……………………………………………………………………………………….. 26

3.7      Data analysis………………………………………………………………………………….. 27

3.8      Ethical issues…………………………………………………………………………………. 27

  1. Chapter 4: Analysis………………………………………………………………………………….. 28

4.1      Part I Participant profile………………………………………………………………….. 29

4.2      Part II Opportunities brought by the establishment of the Trial Free Trade Zone in Shanghai    34

4.3      Part III Threats and disadvantages brought by the establishment of the Trial Free Trade Zone in Shanghai          41

  1. Chapter 5: Conclusions & Recommendations……………………………………………… 47

5.1      Conclusions…………………………………………………………………………………… 47

5.2      Recommendations intended to government / Chinese banks / foreign banks47

5.2.1     The mode of FTZ in Shanghai may be copied to other areas in China48

5.2.2     Closed monitoring of the market competition behaviors in the banking industry to avoid unfair competition…………………………………………………………………………………….. 48

5.2.3     More focus over the human resource planning / strategic human resource design      48

5.2.4     More active learning of the advanced management / service skills. 49

5.2.5     Selecting a local partner and learn with the Chinese culture……….. 49

Appendix 1. QUESTIONNAIRE FOR STAFFS IN BANKING INDUSTRY IN CHINA  56

Appendix 2 Top 50 Commercial Banks in China………………………………………………… 66

 

List of Tables

 

Table 1 Top 10 commercial bank in China………………………………………………….. 21

Table 2 Five forces analysis of China banking industry………………………………… 28

 

 

List of Figures

 

Figure 1 Coverage of Trial Free Trade Zone in Shanghai……………………………….. 9

Figure 2 Porter’s five force model…………………………………………………………….. 19

 

List of Charts

 

Chart 1 The Gross Domestic Product (GDP) in China from 2004 to present….. 15

Chart 2 China Exports Data from 2004 to present………………………………………. 16

Chart 3 China Imports Data from 2004 to present………………………………………. 16

Chart 4 The 5-D Model analysis of Chinese culture…………………………………….. 18

Chart 5 Gender percentage of respondents………………………………………………… 32

Chart 6 Age grouping of respondents………………………………………………………… 33

Chart 7 Nationality percentage of respondents…………………………………………… 34

Chart 8 Highest degree of education held by respondents……………………………. 34

Chart 9 Employers of respondents…………………………………………………………….. 35

Chart 10 Length of work of respondents under the current employer……………. 36

Chart 11 Knowing about Trial Free Trade Zone in Shanghai…………………………. 37

Chart 7 Answers in respect of possibility of successful Trial Free Trade Zone in Shanghai     37

Chart 8 Answers in respect of possibility to copy the mode of Free Trade Zone in Shanghai to other areas in China……………………………………………………………………………………………… 38

Chart 9 Answers in respect of possible number of Free Trade Zones (FTZs) to be built up in China in the next decade (around 2022)………………………………………………………………………. 39

Chart 15 Answers in respect of Free Trade Zone in Shanghai’s helping with the talent pool / human resource upgrading in the banking industry in China…………………………………………. 40

Chart 16 Answers in respect of Free Trade Zone in Shanghai’s helping with the service quality improvement in the banking industry in China……………………………………………………………. 41

Chart 17 Answers in respect of Free Trade Zone in Shanghai’s helping with the technological innovation in the banking industry in China…………………………………………………………………. 42

Chart 18 Answers in respect of Free Trade Zone in Shanghai’s helping with the management level upgrading in the banking industry in China……………………………………………………………. 43

Chart 19 Answers in respect of Free Trade Zone in Shanghai’s attracting more international competitors to enter into the Chinese banking industry……………………………………………………… 44

Chart 20 Answers in respect of Free Trade Zone in Shanghai’s attracting more new competitors to enter / expand into the Chinese banking industry…………………………………………… 45

Chart 21 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will increase the industrial rivalry in the Chinese banking sector………………….. 46

Chart 22 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will increase customer bargaining power in the Chinese banking sector………… 47

Chart 22 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will increase supplier bargaining power in the Chinese banking sector………….. 48

Chart 24 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will enhance the development of the substitute products of the banking service affecting the Chinese banking industry………………………………………………………………………………………….. 49

Opportunities and Challenges In Respect of Establishment of

Trial Free Trade Zone in Shanghai and Impacts over the Banking Industry

 

1.        Chapter 1: Introduction

 

According to the South China Morning Post, the Central Government of China has recently approved the request of local government of Shanghai City to establish the first free trade zone in China. It is believed that the successful implementation of the plan will upgrade the city into a global financial, trading and logistics center compared to other major competitors including Hong Kong and Singapore. In addition, the free trade zone would also play as a pilot role and its successful implementation would serve as a model for future promotion of free trade zones in China to launch major financial reforms as part of a plan to boost the service economy and cut reliance on exports. A general plan governing the operation of the free-trade zone that spans 28.78 square kilometers based on a statement posted on the Ministry of Commerce on 22nd August (scmp.com 2013).

 

1.1    Geographical information of the Trial Free Trade Zone in Shanghai

Figure 1 Coverage of Trial Free Trade Zone in Shanghai

With a planned total area of 28.78 square km, the new zone will be built on the basis of current bonded areas including the the Yangshan Bonded Port, Shanghai Waigaoqiao Free Trade Zone, Waigaoqiao Bonded Logistics Park and Shanghai Pudong Airport Free Trade Zone. These four areas are under special Customs supervision (cri.cn 2013).

 

1.2    Key events & dates

 

2008: China had been in negotiation with other economies about 12 projects of Free Trade Zones in which 29 countries and regions were involved (xjdaily.com 2008)

 

2011: Shanghai government submitted an application for establishment of comprehensive Free Trade Zone in Shanghai to the relevant national department.

 

January 1, 2013: Shanghai in the “Regulations to Promote Shanghai International Trade Center” for the first time proposed establishing a free trade zone in accordance with international practice in Shanghai.

 

At the end of March 2013: Premier Li Keqiang visited and inspected the Shanghai Waigaoqiao Free Trade Zone and encouraged the city government to further develop a test zone for free trade based on the current bounded zones.

 

July 3, 2013: Premier Li Keqiang chaired a State Council executive meeting in which the “Trial Free Trade Zone in Shanghai Overall Program” was approved in principle.

 

July 7, 2013: Premier Li Keqiang approved the foreign banks to establish a wholly owned subsidiary directly, or private banking, or joint venture banks with state owned companies or private parties, and at the same time the foreign parties can also hold a majority stake in joint venture banks in the Trial Free Trade Zone in Shanghai (ifeng.com 2013).

1.3    Industrial overview of banking in China

 

Banking is one of the main industrial sectors of China, and the 5 largest commercial banks are China Industrial and Commercial Bank of China (ICIBC), China Construction Bank (CCB), Bank of China, Agricultural Bank of China (ABC) and Bank of Communications. Since 2003, the 5 largest commercial banks went public bringing significant changes in management, profitability and ability to resist risks as well as effective reforming based on the complex international financial market. The growth of the banking business in China is also in a rapid pace. In accordance with the results published by the China Banking Regulatory Commission, as the end of the first quarter of 2013, assets of China’s banking sector totaled 138 trillion yuan, compared with 131 trillion yuan by the end of 2012, and less than 62.4 trillion yuan by the end of 2008, an increase of about 700,000 billion yuan (bank.cngold.org 2013).

 

In respect of the foreign banks in China, China fulfilled its WTO commitments by opening up the banking sector and provides a more equitable and better development environment to foreign banks in China. Meanwhile, the Chinese economy continued substantial growth which also provides a good business foundation to the foreign banks to expand their business in China. As of end-September 2011, 39 foreign banks (under 247 branches and subsidiaries) had been established in China as well as a foreign financial company, 93 international bank subsidiaries and 207 office points. The number of branches of international banks in mainland of China has increased by 175 in comparison with the same before joining the WTO, the nos. of branches has increased from 6 to 380 (cbrc.gov.cn 2011).

 

 

 

 

 

2.        Chapter 2: Literature review

2.1    Basic terms and definition

 

2.1.1            Free Trade Zone

 

The term free-trade zone or export processing zone, which is also known as foreign-trade zone/area, is formerly free port which is an area inside which commodities may be landed, processed, manufactured or re-handled, and shipped w/o the intervention of the relevant customs department. In case the commodities are sold to the consumers in the country where it is free trade zone is located, only then the existing customs rules would apply (britannica.com 2012).

 

2.1.2            Free Trade Agreement

 

“Free Trade Agreement” could be defined as to a deal between 2 or multiple economies in the business division, covering others reduction as well as abolition of tariffs in commodities trading (Mundo 1999).

 

2.1.3            Culture

 

The term culture refers to the customs (both explicit or implicit) of and for actions acquired and transmitted by symbols, making up the distinctive achievement of social groups, covering their symbols in artifacts; the fundamental value of culture consists of traditional thinking’s and in particular the attached value; the function of cultural system may on one hand be learned as products of action, or on the other hand be understood as conditioning elements for further actions (Tseng & Streltzer 2001).

 

 

 

2.1.4            The finance industry

 

The term finance is also simply understood as the science of funds management, or the distribution of assets and liabilities based on market risks and conditions. A basic understanding of finance is about the time value of fund which requires that a sum of money is more valuable at present than at any time in the future and such value decreases with time passes.

 

2.1.5            Commercial banking

 

The term bank originally referred to an individual or an organization which exchanged one currency for another, i.e. money changer. Now a bank refers to an institution in which people keep their cash balances in term of deposits. According to Webster’s Seventh New Collegiate Dictionary, banking means the business of a bank or a banker and “bank mean the setup for business including custody, loan, exchanging or issue of cash, extension of credit or speeding up the transmission of funding(Maheshwari 2004). The term commercial banks are the organization or institutions which offer commercial loans, credit deposits intended for firms rather than individual users. The term commercial banking could also be known as the business banking and a part of a bank which concentrate in business proportion. The commercial bank only handles with individuals is known as a retail bank, in comparison those handling with capital market are called as investment banks. (investopedia.com 2012).

 

 

 

 

 

 

2.2    Macro environment

 

2.2.1            Political environment in China

 

In the Chinese market, the central government controls and supervises the market. Since the economic reform and following policy being implemented in the 1980s, via the over 30-year continuous efforts spent in for reforming and market opening up, the Chinese government claimed that it still holds the policy to focus on business sector under the name of socialism with Chinese characters (chinadaily.com.cn 2012). While some scholars are still talking about whether China adopts the socialism political system or the capitalism political system, more people now avoid talking about too much about the argument and agree with the policy to put economic as a priority (monthlyreview.org 2004).

 

A major tactic to be adopted in China’s democratic political development is “prioritizing the maintenance of political stability whilst giving due consideration to the expansion of political participation. According to Keping Yu (2010), for China, stability supersedes all else, and the maintenance of political stability should be the most extensively examined issue in China’s political development. From another perspective, the political stability sets the base for the final target of “prioritizing economic development”. Successive Chinese leaders – Deng Xiaoping, Hu Yaobang, Zhao Ziyang, Jiang Zemin and Hu Jintao – all have repeatedly stressed the need for maintaining political stability. They argue that political stability is the most important condition for China’s development and reforms (Zhao 2008).

 

 

 

 

 

2.2.2            Economic environment in China

2.2.2.1      GDP

Chart 1 The Gross Domestic Product (GDP) in China from 2004 to present

Source: The World Bank Group 2013

Since initiating market reforms in 1978, China has shifted from a centrally planned to a market based economy and experienced rapid economic and social development. GDP growth averaging about 10 percent a year has lifted more than 500 million people out of poverty. All Millennium Development Goals have been reached or are within reach. With a population of 1.3 billion, China recently became the second largest economy and is increasingly playing an important and influential role in the global economy (worldbank.org 2013). Despite a continual high speed grow in term of GDP increase, such trend is also easing in the most recent years.

 

According to the Reuters report, China’s GDP growth slowed in the second quarter to 7.5 percent year-on-year as weak overseas demand weighed on output and investment, lining up a test of Beijing’s resolve to revamp the world’s second-biggest economy in the face of deteriorating data. Other figures showed industrial output in June rising slightly less than forecast compared with a year earlier, but retail sales increasing more than had been expected. The latest year-on-year economic growth reading compared with the median forecast in a Reuters poll of 7.5 percent and showed the pace of economic activity easing from 7.7 percent annual growth in January-March (reuters.com 2013).

2.2.2.2      Imports and Exports

 

Chart 2 China Exports Data from 2004 to present

 

Exports in China increased to 1859.91 USD Hundred Million in July of 2013 from 1743.16 USD Hundred Million in June of 2013. Exports in China is reported by the General Administration of Customs. China Exports averaged 439.60 USD Hundred Million from 1983 until 2013, reaching an all time high of 1992.30 USD Hundred Million in December of 2012 (tradingeconomics.com 2013).

 

Chart 3 China Imports Data from 2004 to present

 

Imports in China increased to 1681.73 USD Hundred Million in July of 2013 from 1471.91 USD Hundred Million in June of 2013. China Imports averaged 385.06 USD Hundred Million from 1983 until 2013, reaching an all time high of 1830.13 USD Hundred Million in March of 2013 (tradingeconomics.com 2013). Both the import and export data of China indicate that China’s economy is booming in term of both production capacity (export) and consumption capability (import).

 

But on the other hand, rapid economic ascendance in term of GDP surge and trading volume increase has brought on many challenges as well, including high inequality; rapid urbanization; challenges to environmental sustainability; and external imbalances. China also faces demographic pressures in relate to an aging population and the internal migration of labor.

 

2.2.2.3      The financial system

 

In China there are five key macro-financial linkages: i) The banking system directly facilitates quasi-fiscal policy through its use as a credit channel; ii) Banking system directly facilitates monetary policy, but the credit growth targets undermine the efficiency of credit allocation; iii) Low cost of capital distorts the saving-investment balance of the economy; iv) Capital markets’ underdevelopment limits alternatives for corporate funding and household investments: low rates of return on savings; high precautionary savings through banks; high savings by private enterprises without access to capital markets; continued bank dominance of the financial system; and potential asset bubbles; v) Lack of contestability of markets or ownership for large firms limits competition (worldbank.org 2011).

 

2.2.3            Social and cultural factors

 

In 1980, Geert Hofstede published Culture’s Consequences which soon became a major source of reference about value differences around the world and has been used widely. The four (later five) fundamental dimensions of culture with a high-level impact on human behavior that Hofstede discovered and reported in this study still service today as a basic criteria in most interdisciplinary, cross-culturally comparative research (Luger 2002). The five cultural dimensions are: Power Distance (PDI), Individualism versus collectivism (IDV), Masculinity versus femininity (MAS), Uncertainty avoidance (UAI) and Long-term versus short-term orientation (LTO).

 

Chart 4 The 5-D Model analysis of Chinese culture

Source: geert-hofstede.com 2013

 

At 80 China sits in the higher rankings of PDI – i.e. a society that believes that inequalities amongst people are acceptable. The subordinate-superior relationship tends to be polarized and there is no defense against power abuse by superiors. Individuals are influenced by formal authority and sanctions and are in general optimistic about people’s capacity for leadership and initiative. People should not have aspirations beyond their rank. Another major feature of the Chinese culture is the strong exhibition of the LTO. With a score of 118 China is a highly long term oriented society in which persistence and perseverance are normal. Relationships are ordered by status and the order is observed. Nice people are thrifty and sparing with resources and investment tends to be in long term projects such as real estate (geert-hofstede.com 2013).

2.2.4            Technological environment in China

 

China used to have no modern science and technology. In 2001, “Shenzhou II,” China’s unmanned spaceship was successfully launched and retrieved. The development speed of China’s science and technology in the previous 100 years was regarded as unprecedented. By early 21st century, China has remarkably narrowed the gap in general between its development level of high technology and the world’s advanced level. Over 60 percent of China’s technologies have approached the international advanced level, and 25 percent have greatly progressed, though still lagging behind the international advanced level. China will have a number of world-class scientific research bases, with both the level of industrial technology and its international competitiveness greatly increased (china.org.cn 2010).

 

2.3    Industrial environment

Figure 2 Porter’s five force model

Source: Adapted from Porter 1979

 

According to Michael E. Porter’s well-known framework, there are five forces in an industry which shape the overall competition level within an industry. Porter argued that the stronger each of these forces is, the more limited the ability of established companies to raise prices and earn greater profits. Within Porter’s framework, a strong competitive force can be regarded as a threat because it depresses profits. And a weak competitive force can be viewed as an opportunity because it allows a company to earn greater profits. The five forces are: Risk of entry by potential competitors, bargaining power of buyers, threat of substitutes, bargaining power of suppliers and the overall intensity of rivalry among existing companies. The strength of the five forces may change through time with industry conditions change (Hill & Jones 2008). In the following, we will review the literatures about the Chinese banking industry and at the same time perform an analysis overall the finance industry in China with assist of the Porter’s five force model.

 

2.3.1            The overall intensity of rivalry among existing players

 

Of all the five forces, rivalry among existing players is nearly always the most important in determining an industry’s attractiveness and potential profitability. When organizations in an industry exhibit a high degree of rivalry, industry profits will be decreased. Such rivalry often takes the form of rivals competing aggressively on price. Since price reductions can be easily matched by rivals, they lower the profits for the industry’s incumbents. This is why action like marketing, innovation, and enhanced customer service are used since they can often expand overall customer demand for the products or services offered in an industry (Bensoussan & Fleisher 2013).

 

In China, the overall intensity of rivalry among existing players in the banking industry in China is at a medium level. Firstly, the major competitive forces in the banking industry are: state-owned commercial banks, joint-stock commercial banks, foreign banks (as new entrants). For the four major state-owned commercial banks (Bank of China, Agricultural Bank of China, ICBC, China Construction Bank) and Bank of Communications can be classified as a strategic group. They are similar in term of size, organization and abilities in all aspects. Competition between them is fierce. Most of them have strong retail outlets and geographical and cultural advantages, with excellent customer base and credit reputation which cannot be doubted. Its powerful economies of scale and existing fixed asset investment are the advantages that other competitors cannot match.

 

RankingBankTotal assets (in millions RMB)
1China Industrial and Commercial Bank of China15,476,868
2China Construction Bank12,281,834
3Bank of China11,830,066
4Agricultural Bank of China11,677,577
5Bank of Communications4,611,177
6China Merchants Bank2,794,971
7China CITIC Bank2,765,881
8Shanghai Pudong Development Bank2,684,694
9Shanghai Pudong Development Bank2,408,798
10China Minsheng Bank2,229,064

Table 1 Top 10 commercial bank in China[1]

Source: Standard & Poor’s 2012

 

 

Secondly, as for the emerging joint-stock commercial banks, they are more flexible mechanism. Being familiar with the Chinese banking market, these banks can quickly get adapted to market changes; in comparison with the large state-owned commercial banks they have relatively advanced management philosophy and more flexible working platform. The representative bank is China Merchant Bank. The British “Banker” magazine recently announced Top 1000 World Banks based on the first half of 2013 earnings report (Tier 1 Capital) in which China Merchants Bank with a size of 28.868 billion U.S. dollars of capital entered into the world’s 50 largest banks (ranked 50), the position rose by 6 compared with the same ranking in 2012. With ongoing financial innovation, quality and customer service, prudent management style and good operating results, China Merchants Bank has become the most influential brand in China’s commercial bank. In the overall ratings of commercial banks published by CBRC (China Banking Regulatory Commission), the China Merchants Bank has been among the best for years (chinadaily.com.cn 2013). Foreign banks tend to have relatively more mature and advanced management experience in term of generous reserves of talent and international finance and international credit advantage. But because the operation time in China is shorter, they tend to have relative inadequacies in learning the Chinese market and the Chinese national policy which makes them difficult to occupy the dominant position in the domestic banking sector. Thus absolute advantage in the banking industry in China for any banking groups or tiers is impossible in term of leadership in all aspect including market share, management styles, talent pools and etc.

 

On the other hand the degree of product differentiation and technical contribution rate can not constitute a barrier to entry to any competitors. Also all industry competitors are facing huge exit costs. Therefore, the competition among existing competitors could not ease.

 

2.3.2            Risk of entry by potential competitors

 

Potential competitors are organizations which currently are not competing in an industry but they have the capability to do if they choose. Established organizations try to discourage potential competitors from entering into the industry. Since the more organizations enter an industry, it is more difficult for the established originations to hold the share of the market and generate profits. Thus high risk of entry by potential competitors represents a threat to the profitability of the established organizations. On the other hand, if the risk of new entry is low, established organizations could take advantages of this opportunity to raise prices and earn greater returns (Hiriyappa 2008).

 

The risk of entry by potential competitors is medium in the Chinese banking industry. Commercial banking as a special sector has its inherent properties, such as high debt ratio and powerful social effects and so on. These features require commercial banks new entrants to have a certain amount of capital and a certain business scale. To those powerful entrants, they face another restriction which is the government policy. Government policy as an influential factor is completely different; it always affects the barriers to entry of the domestic commercial banks. Strict business and geographical limitations caused by government policy in term of barriers to entry is also reflected in other aspects. For example the government is limiting the internationally accepted mixed business mode in domestic commercial banks. To the foreign banks, the limitation of entry is strong relatively strong. According to the requirements made upon the accession of WTO, China had lifted some limitations and barriers to entry into the commercial bank sector for the foreign banks. However, based on the “Foreign Capital Bank Management Treaty”, the foreign banks in the territory of China can only handle the retail business of RMB (Chinese Yuan) and can only deal with fix deposit with each fixed deposit transaction being over 1 million yuan (US$ 163,398). Besides, there are also other requirements to be met before a new foreign bank can handle the limited business such as being profitable for two consecutive years and registration of legal person in China.

On the other hand, domestic private capitals are encouraged to enter into the banking industry with various policies in recently years. On May 26, China Banking Regulatory Commission announced “Advices to encourage and guide private capital into the banking sector” which clearly granted the market access for the private capital to enter into the banking sector with no other additional conditions. At the same time, the government supports the private capital to participate in the establishment of village banks and reduce the state capital control percentage from 20% to 15% (xinhuanet.com 2012).

 

2.3.3            Bargaining power of buyers

 

Bargaining power of buyers refers to the ability of buyers to negotiate and create favorable terms for them. A particular industry becomes more attractive if its buyers have low bargaining power. In general, an industry prefers that the bargaining power of its buyers to be low. There are various factors that contribute to the bargaining power of buyers including switching costs, number of buyers and ect. (Ungson & Wong 2008).

 

Bargaining power of buyers in China is in the middle level. On one hand, retail customers, ordinary individuals, have no bargaining power as a negotiator. Any negotiation of terms and conditions of a banking deal will take the form of a win/win negotiation where both sides are attempting to develop a “deal” that is optimum for both participants. The price of credit and the credit standing of the client are pretty much givens. The structure of the loan such as the term and the repayment must be structured in such a way that the client can meet the requirements in term of cash flows and the bank is assured of repayment (searchwarp.com 2013). But on the other hand, in recently years, the expansion of third party payment has become a major competitor

 

 

 

2.3.4            Threat of substitutes

 

Substitutes are products or services that perform the same function or meet the same need as the products or services in the industry under study, but which are produced using different raw materials and inputs. According to Charles E. Bamford and G. Page West (2010), three major factors determine how strong the threat of substitutes will be for an industry: 1) the relative price / performance of the substitute products; 2) the switching costs for the buyer to obtain and use the substitute; 3) buyer’s propensity to try substitute products or services. Substitute tends to increase when the substitutes’ price is equal to or lower than prices of incumbents.

 

Banking industry generally faces two types of substitutes, i.e. capital substitution and technical substitution. On one hand, finance market can be divided into direct finance and indirect finance. Indirect finance such as security business and other capital business also provide the function as finance media. On the other hand, technical substitution has become common in the recent years. Technical substitution could be referred as IT companies being occupying the payment function of traditional banks (Chen 2012). In China, the largest third party payment service provider is Alipay. Alipay (China) Network Technology Co., Ltd. is a leading independent third-party payment platform being an affiliate of Alibaba Group. Since 2004, Alipay is committed to proving “simple, safe, fast” online payment solutions. Alipay proposed confidence-building, simplicity, technology and innovation to drive the credit system. As of December 2012, registered accounts of Alipay exceeded 800 million with daily peak trading volume being more than 20 billion yuan and the peak daily transaction amount reached 100 million (5.8 million transactions). Alipay partners with more than 100 financial institutions including leading national and regional banks across China as well as Visa and MasterCard to facilitate payments in China and abroad. In addition to Taobao Marketplace and Tmall.com, Alipay provides payment solutions for more than 460,000 merchants, covering a wide range of industries including online retail, virtual gaming, digital communications, commercial services, air ticketing and utilities (alipay.com 2013). On June 13, Alipay together with Tianhong Fund launched the financial service product targeting at the Alipay balance – Balance Treasure, through Balance Treasure Alipay users can transfer their account balance to the Balance Treasure account and invest in the Tianhong Fund. As of June 18, 2013, the 7-day annual earning yield was 4.676%. Alipay explained that the money in the Balance Treasure account will actually purchase the Tianhong Fund products through direct sales system built into the Alipay system and users by transferring funds into the Balance Treasure, the account under Tianhong Fund will be activated. In addition, Alipay side emphasized that the Balance Treasure is not “Deposits” business but a similar product like deposit and uses’ income is definitely not interest rate but investment income. As on June 19, Alipay and Tianhong Fund jointly announced that the number of active users in Treasure Balance as of June 18th had exceeded one million (caixin.com 2013).

 

Despite the fact that Alipay is penetrating into the deposit and payment service provided by traditional banks, the majority of the customers seem to use Alipay when doing online shopping and they are not treating the Alipay as banks.

 

2.3.5            Bargaining power of suppliers

 

Bargaining power of suppliers describes the power that the suppliers can have over the businesses that constitute the industry by threatening to raise their prices or reduce the quality of their goods and services. The concentration of suppliers and the availability of substitute suppliers are significant factors in determining supplier power. Suppliers tend to be powerful when they are in a few in number, or when their products or services are crucial inputs to the buyers’ business. The greater the bargaining powers of suppliers, the lower the profit potential for business operating in the industry. The bargaining power is subject to influence in respect of various factors which include switching costs of changing to an alternative supplier, availability of substitute supplier, the importance of volume to supplier, supplier concentration, the impact of product differentiation and etc. (Sahaf 2008).

 

Bargaining power of suppliers is low in banking industry in China. First of all, the bargaining power of computer equipment supplier is low. The concentration ratio of computer is high, many companies use IBM, but it doesn’t mean other computer companies are not good, such as Sun Microsystems, Fujitsu and Hewlett-Pack also provide similar computer equipment and solution. Secondly, the bargaining power of credit card supplier is medium. Credit Card industry is a high concentration ratio industry, VISA, Master Card and American Express is the most popular credit card in the world. Although other organizations also release credit card system, such as JCB, their market share in the world is much less than these three organizations. Moreover, these three organizations brand name is louder than other organizations, so the switching cost from these organizations to others may be too large (drivehq.com 2012).

 

2.4    Concluding remarks

 

Based on the above analysis, the general macro environment for the banking sector in China is good in term of stable political environment as well as stable economic growth; in term of the industrial competitive environment, we can see that the overall competiveness level of the banking industry in China is in a medium level marked by medium intensity of rivalry among existing players, middle risk of entry by potential competitors, middle degree of bargaining power of buyers and so on. From another perspective, the industrial competition is not sufficient enough in the banking industry in China and it is believed that sufficient competition in the banking industry can help with the improvement of service quality as well as the provision of more product offerings.

 

ForceDegree of Competition
Overall intensity of rivalry among existing companiesMiddle Degree
Risk of entry by potential competitorsMiddle Degree
Bargaining power of buyersMiddle Degree
Threat of substitutesMiddle Degree
Bargaining power of suppliersLow Degree

Table 2 Five forces analysis of China banking industry

 

 

 

3.        Chapter 3: The research methodology

 

3.1    The research questions

 

Research Question 1: What are the business opportunities in the banking industry with the establishment of the Trial Free Trade Zone in Shanghai?

 

Research Question 2: What are the business challenges in the banking industry with the establishment of the Trial Free Trade Zone in Shanghai?

 

3.2    The research propositions

 

Research Proposition 1: Data collected from various source are relatively accurate.

 

Research Proposition 2: There are no military actions, wars and other overwhelming and uncontrollable factors affecting the current business environment in China.

 

Research Proposition 3: Business entities are for profit and they tend to act based on their maximized profit and interest.

 

3.3    The research objectives

 

Research Objective 1: To analyze the business chance and challenges in the banking industry with the establishment of the Trial Free Trade Zone in Shanghai

 

Research Objective 2: To offer advices and recommendations for finance business to better utilize the chance of having China’s first Free Trade Zone in Shanghai.

 

3.4    Research approach

 

In this research, qualitative would be the primary research approach while the quantitative methodologies will be used as the supplementary method to be applied to further strengthen the qualitative findings

 

3.5    Data collection

 

Data collection involves the way the data are collected based on which only the analysis could be expanded. The following data collection methods would be adopted:-

 

New paper

Online WebPages

Government websites

Textbook

Library

Original survey

 

While new paper, online source and text book tend to provide the secondary data for this study, the original survey collecting data from 100 bank staffs in China provide the precious primary and first hand data for the research and analysis.

 

3.6    Sampling

 

The simple random sampling (SRS) which is a type of probability sampling in which the all possible samples are equally to get selected (Singh & Mangat 1996) would be applied in the survey to ensure that the majority of the suitable respondents are given an equal probability to receive the survey. A sample of 100 will be done in this study to make sure that the implementation is efficient and also effective to reflect the target group of people’s true ideas of the topic.

 

3.7    Data analysis

 

The term “data analysis” refers to the process by which large amounts of raw data is reviewed in order to determine conclusions based on that data. The data is often unorganized, and may come from different sources (dashboardinsight.com 2013). In this study, quantitative analysis which refers to the process by which numerical data is analyzed (often involves descriptive statistics such as mean, media, standard deviation, etc.) will be adopted primarily targeting at drawing conclusion based on the original survey done to collect ideas from the staffs working in the banking industry in China. Also the information scattered in various media including news paper, online news, relevant magazines and government announcement and legal regulations would be required to be collected in via qualitative analysis to achieve identification of important trends in respect of this study.

 

 

3.8    Ethical issues

 

In general, ethics refers to an activity an area related to inquiry. It is the task of understanding moral values resolve moral issues and justify moral judgments. It may also be referred as discipline or an area of study dealing with good or bad with moral duty and obligation. Ethics is the study of codes of conduct and moral judgment: it is the study of the moral characteristic; the system or moral codes of a particular person, religion, group or profession (Babu 2007, p. 1). There are three possible ethical issues that shall be noted in this study before the start of the analysis part:-

 

Firstly, this study is not entrusted or employed by any party (any banks or companies or governments) and the study is not designed in such a way that it promotes or damage any brand or reputation of any person or organizations;

 

Secondly, since this study is a graduate thesis and all the information (in particular private information and sensitive information) collected will be intended for study purpose only;

 

Thirdly, as the sample volume is only 100 and a random sample method is adopted when collecting raw data, it could be possible that deviations may exist between the conclusions made in this study and the facts.

 

Fourthly, despite that fat that this study is targeting at researching the influence of the setting up of the Trial Free Trade Zone in Shanghai over the banking industry, it does not represent any official views of any government or any units directly or indirectly under the control of the governments.

 

Fifthly, multiple roles do exist. As a Chinese student, when doing research about China, patriotism may affect the professional performance and deem fairness which I had been always trying to avoid through techniques such as approaching more quantitative analysis rather than qualitative analysis as numbers are more objective than descriptive analysis.

 

 

4.        Chapter 4: Analysis

 

4.1    Part I Participant profile

Chart 5 Gender percentage of respondents

 

In the returned 100 pcs of effective questionnaires, based on the answers to the first survey questions, there were 54 female respondents against 46 male counterparts. This gender percentage among the 100 respondents to be studied in this paper is in consistence with the features of employment in the bigger finance sector where the banking industry is included. According to the early “sixth national census” data which show that in 2010, China’s 15-year-old to 64-year-old female working-age population was 490 million, a net increase of 64,693,000 compared with 2000, 6.635 more compared to men. In 2010, closed to or more than 50% women employees were found in agriculture, forestry, animal husbandry, fisheries, water industry, wholesale and retail trade, accommodation and catering, financial services, education, health, social security and social welfare, as well as international organization (china-woman.com 2013).

 

Chart 6 Age grouping of respondents

 

With 42% respondents falling into the age group of “21to30” and 30% falling into the age group “31 to 40”, a young age trend is identified in the banking industry in China. This hints that on one hand, there is a shortage of experienced professional in the banking industry in China; on the other hand, the development of the banking business in China started in a belated time resulting in insufficient experience workers in the industry.

 

Chart 7Nationality percentage of respondents

It is both surprising and reasonable to look to the nationality percentage of respondents as all 100 respondents are Chinese which indicates the lack of talents from other countries in particular those in the management positions.

 

Chart 8Highest degree of education held by respondents

 

In term of degree of education held by respondents, there are two features of the employees working in the banking industry in China identified in our study: first of all, with 22% respondents possessing a master degree or more advanced education degree, the banking industry in China attracts high end talents; secondly, with 40% respondents holding “below degree” background, it may be safe to conclude that these 40% staffs are not well educated with good product knowledge from an academic perspective.

 

Chart 9 Employers of respondents

 

In term of the employers of the respondents, from the above chart showing the results of the survey, we can see that the respondents working in the top five banks in China, (i.e. China Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China and Bank of Communications) accounted for 66% of the 100 respondents.

 

Chart 10 Length of work of respondents under the current employer

 

In term of the length of work of respondents under the current employer, the average period of time working under the current employer among the 100 respondents will be round 3 to 4 years indicating that young employees are more prompt to changing jobs while experienced staffs tend to stay down in the same company.

 

 

 

 

 

 

 

 

 

 

 

 

4.2    Part II Opportunities brought by the establishment of the Trial Free Trade Zone in Shanghai

Chart 11 Knowing about Trial Free Trade Zone in Shanghai

 

With 95% of the respondents claiming that they know about the Trial Free Trade Zone in Shanghai, it can be said that the concept of Trial Free Trade Zone in Shanghai has been well known in the banking industry in China.

 

Chart 12 Answers in respect of possibility of successful Trial Free Trade Zone in Shanghai

When asked about whether “the Trial Free Trade Zone in Shanghai can be successful within the next few years”, 85 per cent of the respondents either agree or strong agree with the Trial Free Trade Zone in Shanghai being successful within the next few years. While only 9 per cent of them are not sure about the answers, only 8% of the respondents are pessimistic about the possibility of successful Trial Free Trade Zone in Shanghai.

 

Chart 13 Answers in respect of possibility to copy the mode of Free Trade Zone in Shanghai to other areas in China

 

As a trial, it is obvious that one major objective of the Trial Free Trade Zone in Shanghai is to extend the mode of operation of the FTZ in Shanghai to other provinces / cities / areas once it is proved to be workable and practicable benefiting the Chinese economy as a whole. When asked “In case the Trial Free Trade Zone in Shanghai is proved to be successful within the next few years, how possible the mode of Free Trade Zone in Shanghai can be extended to other areas in China, e.g. Shenzhen, Tianjin, Qingdao?”, 82% of the respondents chose either “Highly possible (68%)” or “Somewhat possible (14%)”. Thus while there is a large proportion of respondents being optimistic about the possibility of Trial Free Trade Zone in Shanghai’s being successful in the coming few years, the majority of the respondents are even confident about extending the mode of FTZ in Shanghai to other provinces / cities / areas once it is proved to be a success. Based on the answers to another question, most respondents are confident that the mode of trial FTZ in Shanghai can be copied to other areas with more than 1 FTZ are expected in the coming decade.

Chart 14 Answers in respect of possible number of Free Trade Zones (FTZs) to be built up in China in the next decade (around 2022)

 

Chart 15 Answers in respect of Free Trade Zone in Shanghai’s helping with the talent pool / human resource upgrading in the banking industry in China

 

With the majority respondents (77%, 70% choosing “strongly agree” & 7% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai can help with the talent pool / human resource upgrading in the banking industry in China and only a small portion of the respondent (6%, 2% choosing “somewhat disagree” & 4% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as positive element and event in helping with the talent pool / human resource upgrading in the banking sector in China.

 

 

Chart 16 Answers in respect of Free Trade Zone in Shanghai’s helping with the service quality improvement in the banking industry in China

 

With the majority respondents (84%, 77% choosing “strongly agree” & 7% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai can help with the service quality improvement in the banking industry in China and only a small portion of the respondent (8%, 2% choosing “somewhat disagree” & 6% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as positive element and event in helping with the service quality improvement in the banking sector in China.

 

 

Chart 17 Answers in respect of Free Trade Zone in Shanghai’s helping with the technological innovation in the banking industry in China

 

With the majority respondents (79%, 55% choosing “strongly agree” & 24% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai can help with the technological innovation in the banking industry in China and only a small portion of the respondent (8%, 4% choosing “somewhat disagree” & 4% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as positive element and event in helping with the technological innovation in the banking sector in China.

 

Chart 18 Answers in respect of Free Trade Zone in Shanghai’s helping with the management level upgrading in the banking industry in China

 

With the majority respondents (75%, 55% choosing “strongly agree” & 20% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai can help with the management level upgrading in the banking industry in China and only a small portion of the respondent (12%, 8% choosing “somewhat disagree” & 4% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as positive element and event in helping with themanagement level upgrading in the banking sector in China.

 

 

 

 

 

 

 

 

4.3    Part III Threats and disadvantages brought by the establishment of the Trial Free Trade Zone in Shanghai

 

Chart 19 Answers in respect of Free Trade Zone in Shanghai’s attracting more international competitors to enter into the Chinese banking industry

 

According to our above literature review attracting more international competitors shall increase the overall competitiveness in the banking industry and bring down the profitability of the business. With the majority respondents (95%, 85% choosing “strongly agree” & 10% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai will lead to more international competitors in the banking industry in China and only a small portion of the respondent (1% choosing “somewhat disagree” & 0% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as a challenge from the perspective of pushing up the industrial competiveness in the banking sector in China.

 

Chart 20 Answers in respect of Free Trade Zone in Shanghai’s attracting more new competitors to enter / expand into the Chinese banking industry

 

In line with our above literature review attracting more new competitors shall increase the overall competitiveness in the banking industry and bring down the profitability of the business. With the majority respondents (74%, 55% choosing “strongly agree” & 19% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai will lead to more international competitors in the banking industry in China and only a small portion of the respondent (14%, 2% choosing “somewhat disagree” & 12% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as a challenge from the perspective of attracting more new competitors to enter / expand into the Chinese banking industry.

 

Chart 21 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will increase the industrial rivalry in the Chinese banking sector

 

Base on our above literature review increased industrial rivalry shall increase the overall competitiveness in the banking industry and bring down the profitability of the business. With the majority respondents (82%, 67% choosing “strongly agree” & 15% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai will lead to more international competitors in the banking industry in China and only a small portion of the respondent (14%, 2% choosing “somewhat disagree” & 12% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as a challenge from the perspective of pushing up the industrial rivalry in the Chinese banking sector.

 

Chart 22 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will increase customer bargaining power in the Chinese banking sector

 

According to our above literature review increased customer bargaining power shall increase the overall competitiveness in the banking industry and bring down the profitability of the business. With the majority respondents (58%, 33% choosing “strongly agree” & 25% choosing “somewhat agree”) agree that Trial Free Trade Zone in Shanghai will lead to more international competitors in the banking industry in China and only a small portion of the respondent (23%, 14% choosing “somewhat disagree” & 9% choosing “strongly disagree”), it is found out that employees in the banking industry in China consider Trial Free Trade Zone in Shanghai as a challenge from the perspective of increasing the customer bargaining power in the Chinese banking sector.

 

 

Chart 23 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will increase supplier bargaining power in the Chinese banking sector

 

According to our above literature review increased supplier bargaining power in the Chinese banking sector shall increase the overall competitiveness in the banking industry and bring down the profitability of the business. With a bigger number of respondents (44%, 25% choosing “strongly disagree” & 19% choosing “somewhat disagree”) disagree that Trial Free Trade Zone in Shanghai will lead to increased supplier bargaining power in the Chinese banking sector and a smaller portion of the respondent (32%, 18% choosing “somewhat agree” & 14% choosing “strongly agree”), it is found out that employees in the banking industry in China did not consider Trial Free Trade Zone in Shanghai as a challenge from the perspective of increasing the supplier bargaining power in the Chinese banking sector.

 

Chart 24 Answers in respect of Free Trade Zone in Shanghai’s increasing Trial Free Trade Zone in Shanghai will enhance the development of the substitute products of the banking service affecting the Chinese banking industry

 

According to our above literature review enhanced risks of substitute products shall increase the overall competitiveness in the banking industry and bring down the profitability of the business. With a bigger number of respondents (45%, 23% choosing “strongly disagree” & 22% choosing “somewhat disagree”) disagree that Trial Free Trade Zone in Shanghai will lead to enhanced development of the substitute products of the banking service affecting the Chinese banking industry and a smaller portion of the respondent (37%, 20% choosing “somewhat agree” & 17% choosing “strongly agree”), it is found out that employees in the banking industry in China did not consider Trial Free Trade Zone in Shanghai as a challenge from the perspective of increasing the customer bargaining power in the Chinese banking sector.

 

 

 

 

5.        Chapter 5: Conclusions & Recommendations

 

5.1    Conclusions

 

With reference to the above analysis, answers to the beginning research questions can be answered as follows:-

 

The business opportunities in the banking industry with the establishment of the Trial Free Trade Zone in Shanghai include talent pool / human resource upgrading, service quality improvement, technological innovation and management level upgrading.

 

The business challenges in the banking industry with the establishment of the Trial Free Trade Zone in Shanghai include increased customer bargaining power, increased the industrial rivalry, attracting more new competitors and attracting more international competitors.

 

With the uncertainties given in the business environment in the Trial Free Trade Zone in Shanghai, the complexities of the competitive industrial situation in the Chinese banking industry require the market players, e.g. government, existing banks and possible entrants to prepare more for the changing market conditions. Setout hereunder will be several key suggestions based on the above analysis and conclusions made.

 

5.2    Recommendations intended to government / Chinese banks / foreign banks

 

In this part of the study, the recommendations are given based on two sources:-

 

  1. Respondents’ suggestions;
  2. Researcher’s analysis over the relevant facts and data.

 

5.2.1            The mode of FTZ in Shanghai may be copied to other areas in China

 

Based on the analysis of the survey as well as the past experience, the trial in FTZ in Shanghai indicates that the Chinese government is actively exploring the future chance in term of trade and investment and management innovation, and expand services the liberalization as well as seeking better solutions to all kinds of risks by promoting a world-class investment and trade environment with efficient regulatory and legal factors, contributing to a more open economy. At the same time, the successful mode of Shanghai can be copied and be extended to promote the common development of economies in all regions / provinces. Such copy of the successful mode of Shanghai in managing FTZ is also in consistent with the Chinese government’s one major policy focus which is to build up a new platform for international cooperation and development contributed to an upgraded Chinese economy.

 

5.2.2            Closed monitoring of the market competition behaviors in the banking industry to avoid unfair competition

 

As concluded above, the major impact over the Chinese banking industry with the establishment of the FTZ in Shanghai is the increased competition with the introduce of new entrants, other countries’ existing players and increase bargaining power of various parties, thus it is recommended that the government can keep a close eye over the increasingly fierce competition in the industry and avoid any unfair or any other behaviors that are not in consistent with the market regulations.

 

5.2.3            More focus over the human resource planning / strategic human resource design

 

With intense market competition, to the domestic Chinese banks, a major enhanced disadvantage is that they lack of advanced and experienced talents in comparison with the international counterparts. Therefore, base on a long term view the human resource planning / strategic human resource design intended to meet the long term needs of the business will be of great importance.

 

5.2.4            More active learning of the advanced management / service skills

 

As pointed out in the analysis that lack of advanced management level and service quality are major disadvantages for the domestic banks in comparison foreign banks, with the expected faster entering of the foreign banks, the domestic players shall focus on active learning of the advanced management and service skills to make up such short coming and enhance the core business competiveness which benefit the business profitability as a whole in the end.

 

5.2.5            Selecting a local partner and learn with the Chinese culture

 

As introduced, Chinese culture is a rather special culture marked with high long-term orientation and low individualism, for major western banks in their way to enter into the new Chinese market (if they are not currently operating in China) in order to avoid a major difficulty, i.e. cultural shock, a practical & strategic choice is to select a local partner and learn with the Chinese culture.

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Appendix 1. QUESTIONNAIRE FOR STAFFS IN BANKING INDUSTRY IN CHINA

 

Thank you for participating our questionnaire, please take note only STAFFS WORKING IN BANKING INDUSTRY IN CHINA are invited to take this survey. Your participation and information collection in this survey will be strictly used for research “Opportunities and Challenges In Respect of Establishment of Trial Free Trade Zone in Shanghai and Impacts over the Banking Industry”. This survey is aiming at identifying business opportunities and challenge in the finance industry in China with the establishment of the Trial Free Trade Zone in Shanghai and the coming real Free Trade Zone in Shanghai. Your kindly participation is much appreciated.

 

Please answer the following questions based on your personal and career experience, and please don’t hesitate to contact the research persons if you need any assistance.

 

Part I: Participant profile

 

What is your gender?

 

Female                                Male

 

Which age group are you in?

 

20or less                                 21to30

31 to 40                                41 to 50

51 to 60                                61 and above

 

What is your nationality?

Chinese                                 Non-Chinese

What is your highest degree of education?

 

Below degree

Degree

Master degree

PHD or above

 

Which bank are you working for currently?

 

China Industrial and Commercial Bank of China

China Construction Bank

Bank of China

Agricultural Bank of China

Bank of Communications

China Merchants Bank

China CITIC Bank

Shanghai Pudong Development Bank

China Minsheng Bank

China Everbright Bank

Other Banks

 

How long have you been working with the current employer?

 

Less than one year

1 year to 2 years

2 years to 3 years

3 years to 4 years

4 years and above

 

Part II Opportunities brought by the establishment of the Trial Free Trade Zone in Shanghai

 

Do you know about the Trial Free Trade Zone in Shanghai?

 

Yes

No

Not sure

 

Shanghai has won approval from the State Council to set up mainland of China’s first free-trade zone, moving it closer to becoming a global financial, trade and shipping hub to rival other Asian cities such as Hong Kong. Do you agree with the saying that the Trial Free Trade Zone in Shanghai can be successful within the next few years?

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

In case the Trial Free Trade Zone in Shanghai is proved to be successful within the next few years, do you agree that the mode of Free Trade Zone in Shanghai can be extended to other areas in China, e.g. Shenzhen, Tianjin, Qingdao?

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

How many Free Trade Zones (FTZs) do you think will be built up in China in the next decade (around 2022)?

 

Nill

1

2 -3

4 – 5

6 or above

 

Do you agree that the saying that the Free Trade Zone in Shanghai can help with the talent pool / human resource upgrading in the banking industry in China by bring more international competition?

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

Do you agree that the saying that the Free Trade Zone in Shanghai can help with the service quality improvement in the banking industry in China by bring more international competition and creating a more open market?

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

Do you agree that the saying that the Free Trade Zone in Shanghai can help with the technological innovation in the banking industry in China by bring more international competition and creating a more open market?

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

 

 

 

Do you agree that the saying that the Free Trade Zone in Shanghai can help with the management in the banking industry in China by attracting more international competition and creating a more open market?

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

 

Part III Threats and disadvantages brought by the establishment of the Trial Free Trade Zone in Shanghai

 

How do you agree with the following saying that “the establishment of the Trial Free Trade Zone in Shanghai” will attract more international competitors to enter into the Chinese banking industry?”

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

 

How do you agree with the following saying that “the establishment of the Trial Free Trade Zone in Shanghai” will attract more new potential competitors into the Chinese market?”

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

How do you agree with the following saying that “the establishment of the Trial Free Trade Zone in Shanghai” will increase the overall industrial competiveness in the Chinese banking sector?”

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

 

 

 

How do you agree with the following saying that “the establishment of the Trial Free Trade Zone in Shanghai” will increase customer bargaining power in the Chinese banking sector?”

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

How do you agree with the following saying that “the establishment of the Trial Free Trade Zone in Shanghai” will increase supplier bargaining power in the Chinese banking sector?”

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

 

 

 

How do you agree with the following saying that “the establishment of the Trial Free Trade Zone in Shanghai” will enhance the development of the substitute products of the banking service affecting the Chinese banking industry?”

 

Strongly agree

Somewhat agree

Not sure

Somewhat disagree

Strongly disagree

 

Part IV Suggestions given to the government / Chinese banks / foreign banks in respect of the establishment of the Trial Free Trade Zone in Shanghai:

 

 

Suggestion No.1

                                                                  

                                                                  

                                                                  

                                                                  

                                                                  

Suggestion No.2

                                                                  

                                                                  

                                                                  

                                                                   

                                                                  

Suggestion No.3

                                                                  

                                                                  

                                                                   

                                                                  

                                                                  

 

Suggestion No.4

                                                                   

                                                                  

                                                                  

                                                                  


Appendix 2 Top 50 Commercial Banks in China

 

RankingBankTotal assets (in millions RMB)
1China Industrial and Commercial Bank of China15,476,868
2China Construction Bank12,281,834
3Bank of China11,830,066
4Agricultural Bank of China11,677,577
5Bank of Communications4,611,177
6China Merchants Bank2,794,971
7China CITIC Bank2,765,881
8Shanghai Pudong Development Bank2,684,694
9Shanghai Pudong Development Bank2,408,798
10China Minsheng Bank2,229,064
11China Everbright Bank1,733,346
12Ping An Bank1,258,177
13Huaxia Bank1,244,180
14Bank of Beijing956,499
15Guangdong Development Bank918,982
16Bank of Shanghai655,800
17Jiangsu Bank514,146
18Prudential Bank437,289
19Beijing Rural Commercial Bank377,316
20Chongqing Rural Commercial Bank344,820
21Bohai Bank312,488
22Shanghai Rural Commercial Bank309,927
23Zhejiang Bank301,858
24Bank of Nanjing281,792
25Guangzhou Rural Commercial Bank273,737
26HSBC ( China )269,015
27Bank of Ningbo260,498
28Merchants Bank256,982
29Hangzhou Bank243,937
30Bank of Tianjin235,360
31Shengjing Bank221,170
32Bank of Guangzhou205,985
33Harbin Bank202,499
34Bank of Dalian187,893
35Chengdu Rural Commercial Bank187,698
36Jilin Bank186,428
37Jiangnan Rural Commercial Bank183,700
38Baoshang Bank181,941
39Bank of Chengdu181,394
40Bank of East Asia ( China )174,403
41Standard Chartered Bank ( China )173,152
42Longjiang Bank153,019
43Tianjin Rural Commercial Bank149,899
44Dongguan Rural Commercial Bank149,000
45Hankou Bank137,943
46Foshan Shunde Rural Commercial Bank137,502
47Kunlun Bank130,295
48Citibank ( China )127,389
49Chongqing Bank127,217
50Dongguan Bank122,623

Source: Standard & Poor’s 2012

 

[1] Refer to Appendix 2 Top 50 Commercial Banks in China