While Chinese banks are seeing a credit boom due to the nation's huge stimulus package, their foreign peers have not been so lucky and might just be facing their most difficult period as far as business expansion in China is concerned.
According to the central bank's latest monetary policy report, in the first half of 2009, lending by foreign financial institutions in China dropped by 32.7 billion yuan. This is in stark contrast to the recording-setting 7.37 trillion yuan in new loans that Chinese banks gave out in the same period.
Analysts said foreign banks in China, restrained by their global development strategy and disadvantages in competing with Chinese banks for funding major government-led projects, could see a significant decline in business revenue this year.
Foreign banks have rushed to extend their presence in the Chinese market since the nation fully opened up its banking industry in December 2006, but the unexpected global financial crisis, which badly hurt the banks' parent companies at home, has curbed their aggressive expansion spree in China.
"The main clients of foreign banks in China are foreign companies, whose demand for loans has shrunk significantly in the current economic downturn," Lian Ping, chief economist of Bank of Communications, said.
"On the other hand, major Chinese banks gained an upper hand in funding State-backed infrastructure projects, which are usually less risky than lending to companies and are not easily accessed by foreign lenders," he said.
State-controlled banks, main lenders to the government-led 4-trillion yuan stimulus package, advanced 3.26 trillion yuan in new loans in the first half of this year, accounting for nearly half of the nation's entire lending in the period, while foreign banks are commonly believed to be at a disadvantage in making such lending because they lack government connections.