Theory and Practice
New Horizons in International Business series
Chapter 6: Evolutionary Development Strategies
INTRODUCTION The operations of foreign banking activities in China are under the tight control of PBOC. On the one hand, foreign banks have limited access to their targeted clients. On the other hand, the range of banking products is largely conﬁned to the low-order traditional commercial banking services such as trade ﬁnance products, including payments, collection, foreign exchange and letters of credit. The market for high-order ﬁnancial products such as derivatives and complex capital market instruments is still in its infant stage because the local capital market has not been well developed and the local Chinese banks are not competitive enough to confront the challenge. Without a license and suﬃcient reserve of local currency RMB, foreign banks can only compete against local Chinese banks in foreign currency related business. Since the lending rate is only allowed to ﬂoat within a narrow range around the benchmark rate designated by the PBOC, foreign banks can hardly win the price competition in RMB related business. In addition, other policy restrictions as well as the immature business environment keep foreign banks from diversifying their client base and product range. Facing the increasingly intensiﬁed local competition, foreign banks employ diﬀerent strategies or tactics to survive and develop in the local market. Based on interview evidence, this chapter develops an evolutionary framework of the development strategies of foreign banks that oﬀers important implications for business practitioners. The rest of the chapter is set out as follows: the next section presents the...
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