Financial and Professional Services in SW China: Opportunities for British Business

Summary

There are strong opportunities for British financial services companies in Chengdu and Chongqing. Companies active in private equity and venture capital, legal and professional services, financial PR, banking, financial exchange development, securities, wealth management, education, training, consultancy, insurance and pensions will all find a potential market worth exploring.

These opportunities largely stem from the vibrant real economy, rather than specific plans and developments in the financial sector. In this respect the two cities do not necessarily distinguish themselves from other large high-growth cities across China. However, the rapid growth, the populous hinterland the two cities serve, and the continued government focus to develop the West of China does mean that they form natural financial centres for a sizeable population, which is growing ever more wealthy, and will require increasingly sophisticated financial services.

Chongqing has designs to become the ‘financial services centre in the upper reaches of the Yangtze’, and Chengdu the ‘financial centre for Western China’. However, the local government in both cities are quite clear that this comes from the need to have a strong financial sector to offer the services and capital necessary to support the healthy growth of the real economy, rather than a desire to develop finance for its own sake.

It is this need to serve the fast-growing, vibrant local economies that form both cities’ greatest strength when it comes to opportunities for the UK’s financial services industry.

UK Financial Services in Southwest China

Financial services companies from the UK are among the leading international players in China. British banks have more assets in China than those of any other country, UK fund managers have 40% of Europe’s Qualified Foreign Institutional Investor licences and two of the top six foreign life insurers are British.

However, much of the activity has historically been focused on the East Coast, particularly in Beijing, Shanghai and Guangdong province. These areas are now well known to a lot of non-Chinese financial services companies, and competition between international, as well as domestic, players can be fierce.

UK firms are increasingly looking at other areas of China to grow their business. Less well known cities across China can often provide international companies with faster growth, new markets, less competition, and cheaper costs. In the West of China, these advantages are supplemented by high levels of investment and attention from the central government.

Some UK companies have already started working in Southwest China, and those with a presence in Chengdu or Chongqing include ACCA, CIMA, HSBC, Standard Chartered, Standard Life, Willis, and many of the leading accountancy firms.

The Roles of the Regulators

Most financial services regulations are centrally dictated. Local freedom is mainly reserved for on-the-ground support of companies, or in areas which are unregulated. This means that Chengdu and Chongqing are not dramatically set apart from other regional cities across China for many financial services, at least not in terms of regulation. However, practical and financial support is available in both cities in many preferred financial subsectors, such as banking and insurance. These incentives are administered on a local level, and with Chongqing and Chengdu keen to encourage investment, these policies can be very attractive. The regulators in both cities are happy to talk to British companies interested in doing business there about the support available, and also to help navigate the centralised regulations.

The Southwest China City Cluster

Recent CBBC research, conducted on behalf of UKTI, looking at opportunities in China’s regional cities identified 12 city clusters across the country. These are areas where a group of different cities are linked through ever more integrated transport systems, and can offer an efficient market entry strategy for British companies to approach a wider region through a base in one city.
Chongqing and Chengdu are the dominant cities in the Southwest cluster. Of the 12 clusters, the Southwest Cluster, with over 100 million people, is the 2nd most populous, but has the lowest GDP per capita. However, this data is somewhat skewed by the rural population in Sichuan and agricultural areas of Chongqing Municipality. Chengdu has only 10% of the population, but a quarter of the cluster’s total GDP, and GDP per capita is twice as high as any other city in the cluster.

The Southwest Cluster also attracts more foreign direct investment (FDI) than any other inland cluster, and its share of the national total for FDI is increasing. 90% of the FDI into the cluster goes to Chengdu and Chongqing.

Chongqing and Chengdu – City Overviews

Comparing the two cities

Many of the opportunities in Southwest China stem from strong growth in the real economy, this creates potential in similar financial practices in both Chongqing and Chengdu. Due to this, and the good transport links between the two cities, it is sensible for most companies to look at the opportunities for them in both cities, rather than just one, and develop a dual focused strategy. However, for most UK firms looking at establishing a presence in Southwest China, resources dictate that only one office can be opened.
The different industrial strengths in the real economy will play the most important role for some companies in choosing which destination to focus on. To generalise what are actually two complex economies, Chongqing is more well-known as a traditional manufacturing, automotive, and heavy industry base, whereas Chengdu is recognised more for light industry, life sciences, technology and services. However, both cities are moving into high-tech manufacturing. Chongqing, for example, is already producing 25 million laptops per year, and most iPads are now made in Chengdu.

Both cities are looking to become regional financial centres, with Chongqing serving ‘the upper reaches of the Yangtze’ and Chengdu being a ‘financial services centre for Western China’. They will compete for international investment, but as regional centres they are aiming to serve customers in the cities and their hinterland. With over 80 million people in Sichuan, and over 30 million in Chongqing, and with bank finance still the dominant source of capital, this prospect of two regional centres in the Southwest does not seem unlikely; though local companies will still have to go to Shanghai, Shenzhen or abroad to access capital markets.

Both cities have a similar number of public companies, with local governments reporting that there are 36 Chongqing firms and over 40 Chengdu companies listed in Shenzhen or Shanghai. They also have a similar number of domestic IPO applications pending, with a few extra Chongqing companies looking at Mainboard listings and more Chengdu firms on the ChiNext waiting list.

The cities are also similar in terms of the volume of potential international clients, with Chongqing attracting US$ 6.4 billion of foreign direct investment in 2010, and Chengdu receiving US$ 5.9 billion. Although in absolute terms Chongqing receives slightly more FDI, this does reflect the whole municipality, whereas Chengdu’s figures reflect only that city.
For a lot of companies the choice between the two cities comes down to numbers, and here the various incentives can play a big role. These are slightly different in each case, so it is important to engage with the financial affairs offices in both cities before making a decision. They are happy to speak with British companies interested in working in each city. UKTI and CBBC can help make introductions where appropriate.

Read the full CBBC report on Financial Services in Southwest China here.

Visit www.cbbc.org for more information on how you can make the most of the China opportunity.

Sectors: Asset Management, Banking, Capital Markets, Financial & Professional Services, Foreign Exchange, Insurance, and Professional Services
Countries: China
Topics: Finance
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