Foreign Investment in China Banking Sector: HR Challenges
According to China’s perspective, foreign investment and participation can be also controlled by the government the way it controls national banks. Moreover, China managed to be quite successful in attracting foreign capital, while the only gap is the implementation of Human Resource policies. The partnership should be well-grounded and compatible with Chinese culture and values. The banking industry in China is being under a strict control of the government. There is a specific hierarchy of institutions that are established to exercise control. The entrance and exit from the banking system for small institutions are very complicated. The total asset value of all banking system is more than $5 trillion and continues to grow. The government is now open to the initiative of reforming the banking industry to meet the needs of the new era of trade, however, these changes take time and correlation with the communist idea. The entrance to the WTO provoked the major changes in the functioning and legal base of the Chinese banking system.
The banking industries of many developed countries in the world have been subject to significant changes and new phenomena such as mergers and acquisitions. Later, they were forced to adopt rules dictated by these financial giants. China, however, being also exposed to transformations, remained in charge and dictated its own rules to the new banking corporations. It forced them to comply with them or leave the market. Total foreign ownership in the banking partnership cannot excess 25%. The state-owned banks were made more attractive in terms of investment opportunities as they offered nationwide presence. However, other foreign players wanted to spread their commercial banks’ network in China. Joint Stock commercial banks were established for this purpose. They also allowed lessening to a certain extent the degree of pressure from the government regarding some regulations. Geographically, funds flowed to the coastal regions of China where the level of economic development was the highest.
The main goal of foreign banks was to tap credit card and asset management business in China, though the government restricted foreign entrance to these activities. Later, some foreign banks were allowed to operate provincially. On the basis of their success, the main institutions in the Chinese banking industry judged regarding them as potential strategic investors. Therefore, the JSCBs strategy was the most important factor for their success. They needed to investigate the Chinese management style and define what the Chinese society wanted. The Chinese business culture differed significantly from the one of their foreign counterparts. Women did not play an important role in business and rarely occupied management positions. Management was based on the relations building and the development of trust. The Chinese were very task-oriented, though quite flexible about time. Having one’s own business was respected and appreciated by the society more than working in the firm. Therefore, international partners needed to incorporate Chinese ideas about business in order to be successful. The morality of society is based on the Confucian values that promote loyalty and family. Criticizing someone is unappreciated in China. People are focused on gaining skills rather than certificates and diplomas. However, only highly-educated people can demand premium salaries.
Thus, it was really a great challenge for international players to enter the Chinese market and stay profitable. Moreover, they needed not only to adjust to local standards of business, but also gradually change them to make them closer to international ones. HR policies should have been developed with regard to the Chinese culture. They were aimed at achieving the best balance between all stakeholders’ interests.
Questions
“The foreign banks needed to clearly understand the Chinese management style and have at least a minimum level of commitment towards the Chinese society. The Chinese management style was based on relationship building and development of trust” (Strategic Foreign Partnership: HRM Issues). What do you think was the most difficult for international players in the Chinese culture? How do you think, if the Chinese giant banks were entering and penetrating the banking industry of the U.S. or Europe, would they care about these countries’ cultural component of business activity, or they would just continue to promote their own Confucian values?
“While most of the developing nations had to adopt the trend set up the global market giants, China had made its own norms and forced those banking giants to comply with them” (Foreign Investment in Chinese Banks). Do you think China is indeed a communist country, or it has developed its own new model of statehood? What makes it so special that the leading banking giants surrender and agree to the conditions dictated by the Communist party of China?
