LatinFinance - March/April 2013 - 34

South-South report: China

Forward march
By Elliot Wilson

I

n November 2007, Industrial and
Commercial Bank of China dropped a
bombshell. Its first large, long distance
acquisition was for a fifth of South Africabased Standard Bank, for $5.6 billion.
Until then, Beijing’s largest lender by
market cap and revenues had only made a
few small purchases near China’s borders.
Some analysts said the deal was a gamechanger – others, a risk too far.
Neither ICBC nor Standard Bank has
ever given details of revenues or profits
from the deal. But for both sides, the deal
is seen as a blinding success: ICBC gained
access to economically resurgent subSaharan Africa. Standard Bank in turn
has leveraged its relationship with ICBC
as well as Beijing’s leading policy lender,
China Development Bank.
But the deal’s unexpected success
raised a question: why has it taken so long
for Chinese banks to enter Latin America,
that other vast, fast-growing continent?

After years of tentative steps, China’s banks are poised to expand
aggressively in Latin America

Slow pace surprises

Many experts seem at a loss for a credible
explanation. Bilateral trade between
the two blocs increased by a compound
average rate of 30% a year between 2001
and 2011, to nearly $250 billion.
Foreign direct investment (FDI) by
Chinese corporates into Latin America in
2011 totaled $10.1 billion, or 16.8% of
all outbound mainland FDI. That could be
much higher if Latin America’s business
environment “was shifted toward being
more investor-friendly,” says Qinwei
Wang, a China specialist at London based
Capital Economics, and former advisor to
the People’s Bank of China.
But two-way China-Latin American
trade is hardly suffering. The People’s
Republic is now South America’s third
largest trade partner, and its third-largest
source of capital investment, says Li Chao,

34 LatinFinance March/April 2013

Chinese lenders: picking up the pace
the deputy head of SAFE, which regulates
Chinese foreign exchange outflows. And
a 2012 report by the US think-tank InterAmerican Dialogue noted that China’s
annual loan commitment to the region
was greater than the World Bank, the
US Export-Import Bank and the InterAmerican Development Bank combined.
Nevertheless, Chinese banks have
been hesitant to invest in the region.
“There’s every reason in the world for
Chinese banks to push harder and faster
[into Latin America],” says Jason Bedford,
senior manager, financial services at
KPMG in Hong Kong. “I’ve frankly always
been really amazed that no [Chinese bank
has] seen how much potential there is [in
Latin America].”

Bedford, who authors an influential
annual Chinese banking survey, says
he was surprised China’s lenders had
not moved more aggressively into fastgrowing markets like Brazil, Peru, Mexico
and Chile. “It’s a pure no-brainer from
a business perspective,” he adds. “Look
at figures like net interest margins. For
the likes of HSBC, margins are higher in
Latin America than anywhere else in the
world. That, if nothing else, should attract
Chinese banks to the region.”
They are making progress, though.
In January, ICBC opened its first branch
in Brazil. Zhang Hongli, ICBC senior
executive vice president, called for ICBC
Brazil to become a “bridge” to facilitate
trade and investment between China and
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