Citigroup unveils bold China plan
(China Business Weekly)
Updated: 2004-03-01 14:11

Citigroup, the world's largest financial unit, unveiled recently an all-around plan to extend its business lines in China -- including consumer, corporate and investment banking -- indicating the beginning of an aggressive plan to tap the nation's infant financial market.

Also included on the bank's agenda is a relocation of its business headquarters in Shanghai, the extension of its network to cover more cities and the recruitment of more local staff.

Charles Prince

And Charles Prince, the financial conglomerates's chief executive --together with a team of the group's top officials talked in Shanghai about details of the plan, on the sidelines of the launch of a new dual currency credit card, a partnership between Citibank and the issuer, Shanghai Pudong Development Bank (SPDB). It is the first such product approved for a big foreign bank.

Bullish in China

Q: How do you plan to further your business in China?

A: We are coming out of a very good year. Citigroup had a record earning, with record earnings here in the Asia Pacific, and we feel very strongly about the positive aspect of our growth in China. We think we are, by far, ahead of the rest of the industry in terms of our activities in China. It is a personal focus for me and it is a key focus for Citigroup as a whole. So this is a very comfortable, enjoyable place for us and one we are happy to be in.

We are a very very big clients for China. Citigroup is hiring people here to go into other parts of our organization. Citibank will continue to expand its corporate banking business to bring value to our corporate clients. On the retail side, we do hope to expand our network, we are hoping to open up to more cities -- Beijing hopefully in the near future and perhaps Guangzhou.

China become a very important location for retail businesses.

And we've obviously had some remarkable success in our investment banking business. We are not only an investment bank, we're obviously also a corporate bank. We can contribute to the local banking system and local capital market because we have a full range of products, so we are going to be spending more and more time and putting in more and more resources. We are quite pleased with the progress we have made in the last couple of years.

We are looking quite frankly in a number of ways to expand our business and increase our penetration in the market. I think Morgan Stanley has been very successful and we have a number of options to continue to grow our businesses.

I think the key is that we do not see ourselves as transactors, just transactors. We have a full sets of products... we are not here to do any particular transactions and we are looking for ways to increase that (corporate and investment banking) on the ground and continuing non-transactional programmes.

Diversified businesses

Q: Are you going to buy shares in the China Construction Bank (CCB)?

Well, we are always looking for opportunities to grow our business in China. But on that we do not comment on rumors.

(Background: According to an official release, CCB has the lowest non-performing loan rate of the big four State-owned banks, about 12 per cent at the end of 2002.

The team's visit comes as Citigroup's investment banking arm is understood to have been named as one of the underwriters for CCB's initial public offering (IPO) , which is expected to take place early next year.

Citibank has offered to take an equity stake in CCB as part of the IPO, a US$4 billion to US$5 billion deal, which is seen as crucial to transform China's large State-owned banks into solvent and professionally managed institutions.

Q: Reports say that your are going to extend your share in the SPDB to a ceiling of 25 per cent by 2008. Are they correct?

Well, I will give you the same answer to the same question -- we are always looking for opportunities to grow our business. We have a very very good, positive relationship with Shanghai Pudong Development Bank. And I think 2008 is a long time from now. But it is clear that our relationship with SPDB is a very good one. And we are poised to expand that relationship.

Q: How are things going with the underwriting of China Netcome? Is the IPO going to occur in the third quarter?

A: We are moving forward pretty much on schedule. We are very pleased with the contract. (The timing) will depend on the plan and how people work.

China's economy is growing very rapidly, there is enormous interest in Chinese companies as you can see from the recent deals that have been done. I think we are approaching it in a conservative way. We are trying to keep pricing rational and we do a very good due diligence. When we bring deals, they will have very sound economic results.

We want to be an important part of the financial system going forward. We have a very significant banking capability both on the corporate and consumer side, and we want to build up our long-term relationship here.

Q: When will you officially relocate your headquarters into the new building that is now under construction? Do you have a plan to make it a regional headquarters?

A: The new office will be ready by the middle of 2005. The headquarters of our Chinese business have been (here) since 1993, but the regional hub will remain in Hong Kong.

(Background: The company is now nearly ending the construction of its new office in Pudong's Lujiazui Area, a newly developed Wall Street-like finance zone in Shanghai. As one of the firm's milestone projects in China, it will be the home of not only Citigroup's local business, but also some of its operations in the Asia Pacific region).

High hope for card sector

Q: What are the unique features of the card jointly launched between your firm and the SPDB, and those issued by other Chinese banks?

Well, we are very pleased to be here for the launch of our credit card with Shanghai Pudong Development Bank. And it has got a lot of unique features which we think we are ahead of the rest of the industry in this regard.

When Chinese travel around the world, the card's users can use foreign currency and get US dollars.

They can also use it locally in renminbi. The card has a lot of features that we offer to the cardrunner, such as privileges, being able to settle benefits and gain discounts around the world. I think it will be a differentiated product in the market.

Most of the cards in the China market today are debit cards.

What happens is the Chinese consumers are travelling around the world and becoming wealthier. This card can be a tool to make their travel and business more efficient. It can be settled either in dollars or renminbi.

(Background: HSBC teamed with the Bank of Shanghai to launch a credit card in January. It can be used abroad in dollars and settled in China in renminbi with the Bank of Shanghai).

Q: So this year, how many cards are you expected to issue? What is your target?

A: I do not think in general it is the time to reveal the exact number of cards.

Whenever you launch a credit card business, you need a minimum of two to six months to reach a database.

Q:When can a normal Shanghainese go to your bank and actually get a card?

A: We are actually focusing on people living in Shanghai, not only Shanghainese. (Prince said the card will be issued in Shanghai and then extending to other parts of the country through SPDB's networks nationwide).

(The card business) is a joint venture between SPDB and us, it is a long-term commitment. The reality is this is the beginning of a product set. Obviously, when you start with a single product, you are starting with the test or pilot. You are not going to make a huge amount of money on day one. We obviously have very high hopes for our overall business in China, both for the consumer business, the corporate business, and so forth.

Q: Has Citibank itself applied to issue cards separately because foreign banks are allowed to issue foreign-currency-dominated credit cards?

A: Our credit card business on the Chinese mainland will be partnered with SPDB. Our activity on the Chinese mainland in terms of the credit card business has been and will be with SPDB.

Positive reform of China's banks

Q: What's your view about China's banking reform?

Sure, I am happy that I was in Beijing yesterday and met a number of regulators and customers. I have been here a lot over the last several years. I think the one thing that stood out was the focus that the regulators have on the strength, and increasing the strength, over the banking industry. I think the transformation of China into one of the great economic powers of the world is going to be one of the signals of entering the 21st century. And I think everyone here recognizes the key importance, the centrality of a strong banking system to that. So the attention to dealing with the strength of the banking industry is just remarkable. And I am very optimistic about what has been done so far to address those kinds of issues. I am very bullish on the way the regulators and the government have been dealing with the banking industry within China.

Q: In your meeting with regulators in Beijing, did they make clear signals about encouraging foreign banks to buy equity in local corporations?

I think they recognize that transparency and corporate governance are important aspects of the maturation of the local banking industry, and I believe they believe that interactions with foreigners with foreign banks and other institutions encourages that. But I do not think anybody proposes any specific strategic investments in any of the four banks.

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