Among the big Chinese lenders, China Merchants Bank is a relative newcomer, founded in 1987 in Shenzhen. The city – although it wasn’t much of a city back then – was China’s first special economic zone, promoted by Deng Xiaoping as an experimental place to try out elements of market capitalism.
“So we have that in our blood,” says Tian Huiyu, president of China Merchants Bank (CMB).
That, 1987, was also the year he started out in banking, initially at China Construction Bank.
|Tian Huiyu, China Merchants Bank|
“I’m very lucky,” he says. “My whole career of 32 years has been in the same period when the Chinese economy has been growing. For any commercial bank, this is a golden era.”
Tian identifies two distinct periods in the evolution of mainland banking. In the first, “Chinese banks needed only to get one thing right and that was to grow scale.” Banks in this period expanded dramatically and listed on international stock markets.
“But if you look at the banks they were very similar,” says Tian. “They didn’t have different features. They were differentiated mainly by size: if you saw a big bank, you knew for sure that they had bigger profits.”
The second phase, Tian says, was marked by the global financial crisis.
“Then you started to see differentiation among banks,” he says. “They became more focused on structure, not just scale.”
They made decisions about the divisions between corporate and retail, the composition of interest income and their business priorities.
He doesn’t mention names but compares two large banks: they deliver the same profits but one has 1.5 times the assets of the other, yet the smaller one by assets has twice the market cap.
“We didn’t see that before 2008,” he says. “The difference in market capitalization reflects changes in structure.”
In that context, CMB has been distinctive.
“CMB has innovation in its blood, and our differentiation has been practised nonstop,” says Tian. Specifically, he believes the bank’s use of technology has been not only market leading but essential.
“CMB, from day one, didn’t have much financial support from the government, so when it came to resources, we were in an inferior position to state-owned banks,” he says.
It still had to provide a comprehensive retail service, however.
“To do retail banking you need a very large physical network, but we couldn’t afford that, so naturally we turned to technology.”
Retail itself is another differentiator. Tian argues that as China transitions from high to medium growth, wholesale banking will be more affected than retail.
“Retail tries to be more resilient, more anti-cyclical,” he says. “The structure of CMB fits in well while China is undergoing such a transition.”
That doesn’t yet mean taking on the world. CMB has six international offices, but they are there to serve Chinese clients moving overseas.
“We simply do the things our customers need us to do,” he says. “When it comes to globalization, we don’t believe CMB is ready yet.”
A better play on international linkage is to benefit from foreigners coming into the market – and this is perhaps clearest in private banking, where CMB is among the leaders.
“So many of the products we sell to private bank clients were designed jointly with top international wealth and asset management firms,” Tian says. “We have been learning from each other.”
He also hopes to partner with one of the biggest threats to Chinese retail banking – fintechs – arguing each side has different skills.
“You see straight away that online payment and transfer companies have a crowd-out effect on traditional banks,” he says. “But what they don’t have is the sense of the financial markets. Trust and credit have to be built up over the years.”
CMB is well positioned for a big state priority, the Greater Bay Area; in fact this is probably a better opportunity for the bank than the Belt and Road Initiative. CMB is well represented in the mega-cities of Shenzhen, Guangdong and Hong Kong, as well as other key Greater Bay Area towns such as Dongguan.
Tian says GBA will be “one of the greatest plans among all Chinese initiatives so far.” Each of the mega-cities, he says, has the GDP of a medium-sized country.
“For us in financial services, there are great opportunities.”
Tian says that a key to the bank’s progress is forward planning.
“I will share a secret with you,” he says. “We look at today, tomorrow and the day after. For today, you look at the financials. For tomorrow, you look at the customers. For the day after, you look at the business model.
“For us, we look at all of them at the same time.”