With more than 260 foreign outlets and representative offices in holding 20 percent of total banking assets in Shanghai, the city has become one of the most competitive bank markets in the world.

“It requires more than branch networks and branding to be competitive among the foreign players,” said Charles Li, chief executive officer and president of the Chinese unit of Australia & New Zealand Bank.

Li joined Melbourne-based ANZ, one of the top four Australian banks, as CEO for China in 2011. He was previously the country executive and head of global banking at the Chinese subsidiary of the Royal Bank of Scotland.

ANZ opened its first representative office in China in 1986. China has become Australia’s biggest export market, buying Australian iron ore, coal, copper, natural gas and other resource commodities.

Li has more than 17 years banking experience in China and Europe. Prior to joining RBS in 1994, he worked as a financial commentator for the BBC World Service London and remains an active participant in various executive discussion panels on Chinese and Asian affairs.

He holds a doctorate in strategic management from Aston Business School in the United Kingdom, a master’s degree in management from Birmingham University and a bachelor degree in mechanical engineering from the Beijing Institute of Technology.

Sitting in ANZ China’s headquarters in Shanghai’s Lujiazui area, Li talked discussed with Shanghai Daily how his bank utilizes the economic ties between Australia and China for its development in Asia.

Q: ANZ wasn’t among the first foreign banks to incorporate on China’s mainland. What are the pros and cons of being a latecomer to the market?

A: We are not a latecomer. ANZ has been in China for more than 27 years. Establishing ANZ China in 2010 was the milestone of our development in the mainland. We’ve been here for more than 27 years. The branches in Beijing and Shanghai in the early years were largely focused on commodity trade-related business.

China has a long history of buying iron ore from Australia, and we have been a very important partner of trade financing for business activities between the two countries.

Financing for the natural resources and agricultural sectors are our strongest advantages worldwide.

Our group CEO Michael Smith initiated a new strategy in 2008 to make ANZ the super regional bank in the Asia-Pacific. We regard China as a very important market as well as a foothold for us to develop a network in the region.
We learned from the experiences of other foreign banks to avoid some of the pitfalls.

Some foreign banks have built exorbitant networks. Some of them already have started to make adjustments to or even close down some of the outlets. We are more prudent about opening branches in new cities.

We plan to open branches only in regions like the Yangtze River Delta, the Pearl River Delta, the Bohai economic rim, and the western region. New locations are weighed carefully to align with the development of our wholesale banking business.

One of the disadvantages of being a late entrant is that it took a little bit longer to get certain business licenses due to complex regulatory requirements in the mainland market.

But, in general, we’ve made tremendous achievements in the past three years. We are the only Australian bank that has become locally incorporated. Now we operate in China with full licenses, including banking in both foreign and local currencies, business and personal banking and a market maker for direct trading of Chinese yuan and Australian dollars, and gold.

We now have eight outlets in five cities in the mainland.

Q: It’s been a year and half since ANZ China received the retail license to do yuan business. Who are your targeted customers?

A: On the retail side, we also learned from the experience of foreign peers. We adopted a focused strategy, which is to make those with Australian and New Zealand connections our core customers. The group comprises Chinese students studying in Australia, Chinese immigrants and people who make investments in Australia. We bank the family.

This is a very large group. According to our estimations, there are almost 10,000 new Chinese immigrant households in Australia every year. The number of Chinese overseas students is even bigger. About a third of students in Australian universities speak Chinese.

Some of the investment immigrants and overseas student families also have business banking needs, which naturally expands our business here. Overall retail business grew by 40 to 50 percent annually in the past three years.

Q: The group made a US$300 million capital injection to ANZ China last year. Will that be mainly used for opening new branches?

A: Sure, the additional capital will support us in opening more branches. But more importantly, it has shored up our capital strength. Almost every banking business line needs extra capital for growth.

It’s a general phenomenon in China that the public and the media use the scale of branch networks to measure the development of foreign banks. Foreign banks have been here for over 30 years. We are not going to open a new branch unless there’s something for us to do in that location.

Foreign banks have moved beyond the stage when they scrambled for bigger networks.

The development of Chinese subsidiaries of foreign banks relies on the strengths of their parent companies in overseas markets.

We are the partner of the Chinese enterprises that have investments in Australia. If you don’t provide services for their overseas operations, you don’t have the chance to do business with them in China. Naturally, Chinese banks are their first choice here.

Foreign banks have entered the third stage of development in China. In the first stage, when China opened up its market to the world, they assisted with Sino-foreign trade. The second stage involved facilitating the reforms of the state-owned Chinese banks. I think the third stage will focus on market reform and product innovation.

Product innovation is another important strength of foreign banks. Market reforms such as interest rate liberalization will promote differentiated operations among the banks. It provides greater incentives for the banks to seek new growth opportunities, which will largely promote financial innovation in the Chinese market.

Q: Why does ANZ China need a credit rating from Standard & Poor’s? It’s not a common practice among the Chinese subsidiaries of global banks.

A: It’s like a benchmark in the market. We are the first Australian bank to be awarded an S&P rating in China.

We’ve been issued “A+” long-term and “A-1” short-term issuer credit ratings by S&P, with a “stable” credit rating outlook. The rating is a reflection of our stable credit position and ANZ China’s strategic importance to ANZ’s expansion strategy in Asia.

The rating tells our customers about our capital strength and our capabilities in strategy execution, operation management, liquidity management and risk control. I believe it will help us to approach our customers and expand our customer base.

Q: The People’s Bank of China criticized the liquidity management of some Chinese banks during the cash squeeze in late June, which sent money market rates to record highs. Did the foreign banks have the same issue?

A: During the cash squeeze in June, foreign banks, including ANZ, were generally supplying funds in the interbank market, which was noted by regulators. We are very confident about our liquidity risk management.