LatinFinance - March/April 2013 - 35

South-South report: China

Brazil, at the São Paulo branch opening.
Last November, the Chinese lender
built on its Standard Bank acquisition,
becoming the first mainland lender to
enter Argentina. It bought an 80% stake
in Standard Bank Argentina (SBA), the
country’s 12th largest, with 100 branches
and around $4 billion in assets. ICBC
and Standard Bank, which keeps a 20%
stake in SBA, plan jointly to invest $100
million in the division. ICBC already has a
presence in Peru.
Beijing’s other leading state lenders
are also considering opportunities in
Latin America. Bank of China (BOC)
has long-standing operations in Brazil,
Peru and Chile, providing services to
Chinese multinationals including telecoms
equipment makers Huawei and ZTE, and
logistics firms COSCO and China Shipping
(Group) Company. China Construction
Bank has been slower to enter the market,
although it is also looking. In November,
the head of corporate banking and trade
finance at CCB’s United States division,
John Weinshank, promised that the
lender would open an office in the region
“quite soon”, most likely in Peru or Brazil.

Following the corporates

There are solid reasons for Chinese banks
to establish a presence in Latin America.
Bilateral trade figures show investment
pouring into the region from expansionminded mainland corporates.
Chinese firms coveting energy, mining
and metals resources have been flooding
in. Sinopec Group’s 2010 purchase of 40%
of Spanish oil firm Repsol’s Brazilian arm
for $7.1 billion is a standout example of
the trend.
More recently, Chinese capital has
started to flow into the secondary and
tertiary sectors, from IT and autos to
agriculture and real estate. In September
2012, PC-maker Lenovo 2012 bought
Brazilian electronics group CEE for close
to $150 million in cash and stock. The
same month, Beijing-based Beiqi Foton
Motor said it would set up two factories in
Brazil to make tractors, trucks and buses.
Chinese banks are keen to follow
the mainland firms into these markets.
Indeed, many in Beijing see Latin America
as the next logical step in China Inc.’s
expansion across the emerging world,

after Southeast Asia and Africa. “Chinese
banks are simply following China’s trade
and investment [patterns],” says Li-Gang
Liu, chief China economist at ANZ Hong
Kong.
“The initial objective is to serve
Chinese firms operating in Latin America.
The representative offices come first,
followed by branches, eventually engaging
in [services like] mergers and acquisitions
advice.”
In time, says Liu, the likes of ICBC,
Bank of China and CCB will offer the types
of banking and capital markets services
provided across the region by the likes
of Citi, HSBC, Santander and JPMorgan
including cash management, trade,
project and credit finance, syndicated
loans and foreign exchange.
Here, Chinese banks have a distinct
advantage. Loans to Latin American
corporates by Chinese commercial and

“It’s a pure no-brainer from
a business perspective”
Jason Bedford, KPMG
policy lenders offer more favorable terms
and impose less stringent policy guidelines
and environmental conditions than their
Western counterparts, Inter-American
Dialogue said in its 2012 report. Chexim,
China’s Export-Import bank, offers lower
interest rates than Western counterparts
like the Export-Import Bank of the United
States, the think tank added.
Chinese lenders also benefit from their
position in a financial system with a huge,
captive audience of domestic depositors.
Without the pressure many other
global banks are under to increase capital,
Chinese lenders are encouraged by Beijing
to channel cash overseas. “Few banks in
the world can offer the sort of [financing
lines] that Chinese banks can,” says
KPMG’s Bedford. “They can offer financing
to corporates across strategic areas, from
project finance and corporate loans to
M&A financing. I can’t see anywhere else
in the world [apart from Latin America]
that Chinese banks have this scale of
opportunity.”

Chinese banks are set to expand
aggressively through Latin America, says
a leading China-focused M&A banker.
“You’ll see acquisitions and aggressive
[organic] expansion,” says the banker,
who declined to be named, and who is
advising one of the country’s big-three
lenders. “In ten years, Chinese banks will
be as powerful [across Latin America] as
European or North American banks.”

Expertise questions

Less certain is how willing or able Latin
American lenders are to expand in the
opposite direction. The region’s banks
have historically viewed China’s vast
market with a mix of bafflement and
indifference. Banco de Chile, Santiago’s
second largest lender, has had a
representative office in Beijing since 2006
but, says KPMG’s Bedford, “despite having
been there forever, they have done pretty
much nothing”.
Brazil’s largest lender by assets,
Banco do Brasil (BdB), is perhaps the first
Latin American institution to take China
seriously as an investment destination.
In December 2012, it secured the first
of three licenses required to open a
representative office in Beijing. Senior
vice president for wholesale banking
and international operations Paulo
Rogerio Caffarelli says that after the two
remaining licenses are secured, hopefully
in 2013, BdB will hire around 20
employees to support Brazilian companies
with business in China.
But other Latin American lenders
face a struggle to establish themselves
in the market. Latin America’s leading
corporates are already well served in East
Asia by large US and European banks, says
ANZ’s Liu. Convincing the likes of Vale
that they would be better served by a bank
with no experience in Chinese rules and
regulations would be a test.
At the same time, no Latin American
investor has registered for the qualified
foreign institutional investor (QFII)
quotas required to buy mainland-listed
securities from outside the country.
Over the past ten years, 172 entities
including Yale University, the City of
London and the Gates Foundation have
received QFII quotas worth $27 billion.
None is based south of the Rio Grande. LF

March/April 2013

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