Minsheng Bank Government Regulation Affects the International

Minsheng Bank

Government regulation affects the international expansion in a few different ways. In China, most banks are state-owned. Those that are not, such as Minsheng, still are subject to considerable regulation. The government had to approve the purchase of the shared in UCBH, and it had to approve UCBH's purchase of BDB. The bank is free to pursue whatever opportunities it desires, but all transactions that involve overseas expansion are subject to government approval, and the process is not particularly transparent. It is expected, however, that the regulatory regime is going to be less strict in the future, following China's accession to the World Trade Organization. As regulations decrease, opportunities both for Chinese banks to expand internationally, but also for foreign banks to move into the Chinese market.

That said, the government still controls "the establishment, registration, scope, qualification, supervision, dissolution and liquidation of foreign financial institutions" in the country, and the government also maintains control over foreign exchange. Part of the regulatory environment is guided by trade agreements. Many nations are protective of their banking sectors, and so they are usually subject to more restrictions than firms in other industries. The Chinese market has opened up somewhat, but unless China opens its markets fully, Chinese banks will be subject to regulation when they attempt to expand overseas. Many nations maintain foreign ownership rules, and as long as China has similar rules, there will be limits on the size of stake that Minsheng can acquire of a foreign bank.

2. Minsheng to this point has taken a conservative approach to international expansion. It has acquired a minor U.S. bank, and did so in two transactions. UCBH as an acquisition was strategic, as the company is based in California and has links with China. The two have come together because there is mutual benefit to doing so, as they give better access to each other's markets to their clients and can probably lower the cost of doing business between the U.S. And China as a result.

It is expected, however, that Minsheng will need to continue to expand internationally. As the Chinese banking market becomes more open, and its banks seek to spend their capital on building a global presence, it is expected that many Chinese banks will expand overseas. In a way, Minsheng should base its strategies more on its own needs, but if those needs include expanding, it should be aware that it should move first to acquire the best assets and at the best prices.

Minsheng should have a coherent vision for global expansion, however. There are significant challenges associated with building a global banking empire, and the company will need to take these challenges into account, and not grow faster than it can, based on its human resources. Minsheng needs to make acquisitions that fit with a coherent strategy -- does it want investments simply in the U.S., or should it look to other markets in order to shore up a truly global strategy? Until Minsheng knows why it is expanding, it should refrain from undertaking a risky expansion strategy.

Ultimately, Minsheng is most likely going to expand because that will allow it to provide better service for its customers, and because it is freer to do so as a private bank. The company simply needs to have a strategy in place and expand according to its strategic needs, rather than going on an acquisition spree just to beat out competitors.

3. The investment in UCBH will allow Minsheng to learn more about U.S. banking practices. One of the main benefits of such an acquisition is knowledge transfer, and this is very much the case here, especially because UCBH does business in China. For Minsheng, it is important to learn about Western banking practices not only to assist it in dealing with Western banks but also in order to learn things from a sophisticated private system that most Chinese bankers won't know, having been raised in a system with tight government controls and public banks.