Consolidation and internationalization in the global banking industry since the 1980s, and the implications for Chinese banking reform

Since the 1980s, a combination of forces, in particular financial liberalization and the IT revolution, have driven a new round of global banking consolidation. Since the 1990s, all the industrial countries including the US, Western European countries and Japan, have witnessed accelerated consolidation of their banking markets through mergers and acquisitions. As a consequence, the number of banks has dropped and the market has become increasingly concentrated. In some countries such as the Scandinavian and Benelux countries, the market, has become highly consolidated. Most importantly, a group of ‘national champion’ banks has emerged in each of the leading industrial countries. The American leading banks have emerged as the biggest in terms of scale and profitability among international banks. Cross-border mergers among banks in industrial countries have been relatively small in number but highly noteworthy in significance. By 2001 through large-scale cross-border acquisitions, international banks have bought out nearly all the bank assets in the CEE and today control the majority of bank assets in Latin America. International banks are advancing towards East Asia where currently they have less presence but with great growth potential. China is opening up one of the largest banking markets in the world and may become the decisive battlefield for the ‘global game’. The destiny of the Chinese banking industry will depend entirely upon the ongoing reform of the four state-owned banks. This reform focuses on NPL clearance, recapitization, reorganization of business processes, and improved corporate governance. The Chinese government’s stated strategy is to introduce foreign banks as minority strategic investors to help rehabilitate its ‘big four’ but without relinquishing overall ownership and management control. It is still uncertain whether Chinese banks will end up as subsidiaries of international banks or stand as competitors against them.EThOS - Electronic Theses Online ServiceGBUnited Kingdo