Surge of Cross-Border M&A Deals by Chinese Banks Is Creating
Opportunities for Foreign Banks

Chinese Banks Have Good Reason to Venture Abroad but Face a Range of
Challenges as They Pursue Cross-Border Deals
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Chinese banks have been pursuing larger, more ambitious M&A deals.
Many deals have involved taking stakes in foreign institutions,
according to a report by The Boston Consulting Group (BCG). The
report, titled Venturing Abroad: Chinese Banks and Cross-Border M&A ,
released on September 18, 2008.

From 1993 through 2005, Chinese banks made an average of about one
cross-border acquisition per year. Most deals were valued at under $20
million. Since then, Chinese banks have made 11 cross-border M&A
deals. Five of these were worth at least $1 billion.

"Chinese banks face a range of challenges as they pursue overseas M&A
deals," said coauthor Tjun Tang, a partner in BCG's Hong King
office , "but they are moving inexorably toward a more international
profile. Their size alone makes them capable of influencing markets,
particularly if they can harness the momentum of China's global
challengers-dynamic companies that are heading abroad.

"To build strong international positions, however, Chinese banks still
need to develop core skills and capabilities," Tang said. "M&A deals
can help accelerate this process. In the meantime, the surge of cross-
border M&A by Chinese banks is likely to be more of an opportunity
than a threat to foreign banks."

Cash-rich Chinese banks can help foreign banks weather the current
financial crisis. Several Western banks have already courted foreign
investors. Foreign banks could also look for opportunities to provide
Chinese banks with the presence to serve their globalizing customer
base. "Chinese banks want true partnerships," said coauthor Holger
Michaelis, a partner in BCG's Beijing office. "They are not just
looking for ways to spend their capital. They're searching for ways to
acquire new capabilities, enhance their offerings, and leverage their
emerging-markets skills."

In addition, Western banks, particularly those that have been hit hard
by the crisis, might consider selling business lines as a way to free
up capital and refocus on core objectives. "Chinese banks have both
the capital and the incentive to make such purchases," Michaelis said.
"They are not direct competitors-at least not yet-and therefore
present a better option for banks seeking to divest business lines."

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