The Motives Underlying Multinational Banks' Entry into China

Abstract

This paper explores the reasons why multinational banks choose (or choose not) to establish themselves in China, and identifies the factors that determine how aggressive multinational banks are in their development of the China market. The empirical results show that, the larger a multinational bank's total assets (TA), the more likely it is that the bank has already entered the China market. The major leading multinational banks certainly would consider that they must be in China to prove to their customers they are major players of international banks. Moreover, Asian banks are more likely to be operating in China than non-Asian banks. The factors that have a significant influence on how actively foreign banks seek to develop the China market depends on the bank's own characteristics – such as the non-interest income ratio, its ability to cope with risk, geographical closeness, and the need to follow important customers into China. In light of the empirical finding, the Taiwanese banks' strategies in the Chinese market should focus on exploiting the advantages of cultural and geographical proximity, and adopt a policy of ‘follow the customer’ to overcome their disadvantages when competing with multinational banks.