An Argument Against Citigroup in China Essay

China has seen massive economic growth in the past few decades. Since its reopening in the 1970s, the country has begun trading and buying foreign currencies with western nations like the United States. When the housing crisis which began to unravel in 2007 really hit the American economy hard, China was more than happy to step in and put up funding to help keep the American economy, one of its biggest customers, in a delicate balance. Unfortunately, the American economy has been incredibly slow to recover from the last major recession. As such, it has increased its dependence on Chinese funding to back American debt.

When China joined the WTO in 2001, its banking sector was in a very weak state, troubled by a serious non-performing loans (NPLs) problem. Thus, numerous measures like a large sum of government funds (roughly 20% of China’s GDP in 2004) have been provided to resolve the NPLs problems. Since 2003, China Banking Regulatory Commission (CBRC) was established to strengthen bank regulation and this has improved performance due to foreign competitors, lower transaction cost & easy administrative procedure for obtaining the loan with added tax saving. While Geeli has limited debt on its balance sheet there are still drawbacks with these options as emphasized below:

laws are changing more rapidly now that China is seeing foreign companies show up. China is

These effective strategies helped Hong Kong overcome the financial crisis. All these facts fully demonstrated that China is a responsible big country. After the Asia financial crisis, the importance of China's economy has been brought into focus; China's neighboring countries have begun to recognize the influence of the Renminbi.

China’s financial markets are still fairly primitive however China has one of the highest saving rates in the world. This is Largely due to rising incomes, but also due to the lack of a robust social safety net to protect citizens from changing economic circumstances such as unemployment and population ageing. The banking sector was only opened to foreign competition at the end of 2006. This forced Chinese banks to become strong and efficient so as to compete with the international banks. In making the banks more efficient, state owned enterprises also had to increase their efficiency as they no longer were allowed to take low cost loans that were running at a loss for the state bank. These economic developments coupled with increased prudential standards and the improvement of lending practices has allowed for savings to be allocated efficiently for investment purposes, to support medium term growth in the Chinese economy.

Ping An, founded in 1988, is a private company that sits at the intersection of banking and insurance in China. It has taken advantage of China being the world’s fastest-growing insurance market and reductions of regulatory controls following China’s entry into the WTO in 2001. Ping An has built a highly profitable business and is exploring using the Bancassurance strategy, that is, selling its insurance products via banks in order to quickly and inexpensively develop market share without the need to develop agency relationships in the direct channel. While its largest shareholder is HSBC (16.13%), Ping An’s own foreign investments have been less than successful, with a failed $3.4 billion investment in large European bank Fortis in 2008. The global financial crisis was a major factor influencing this European failure, but the Chinese banking sector generally was largely insulated from the GFC due to its closed structure and no heavy investments in Europe. In 2009, Ping An acquired the Shenzhen Development Bank and is once again considering expanding the company abroad.

China’s accession to the WTO in 2001 has helped shape its economy to becoming a more predictable environment for trade and foreign investment. Corporate governance and frameworks for business operations and interactions have improved, providing a much more transparent environment. (Deckers, 2004)

Globalization has, for better or worse, altered the economic arena for every country in the world. For many less developed countries, globalization has leveled the playing field so that their economies can compete with the larger, more developed ones such as the United States and other large western economies. For instance, technical engineers in India and China are now just as qualified as engineers in America, but at half the cost. The once large and prosperous service sector in the United States as well as telemarketing services have largely been sourced to India as a large exodus of American multinational corporations find cheaper workers who deliver comparable quality. This then seems to be the essence of globalization - businesses

It was November 14th 2015, with the recent decline of the Euro and soaring price of the American Dollar, Multinational Enterprises (MNEs) had to think about hedging their risk of currency due to the volatility of the markets. Large MNEs were taking the biggest hit, precisely American-based law firms with much European clientele. Citigroup, a financial conglomerate based in the New York., was one of those companies and felt particularly vulnerable with one of its subsidiary 's "Citibank Law" also located in the United States. To address this concern, Citigroup headquarters called up CEO of the Citi Private Bank Legal Advisory Services in the U.S., Mr. Art Vandalay. Art Vandalay graduated from the University of Waterloo with an undergraduate in Architecture. With no luck on attaining a job upon graduation, he decided to enroll in the MSc/CEMS MIM program at the Richard Ivey School of Business in London, Ontario to make himself more marketable to various architectural firms. This is where Art discovered his love for finance and decided not to follow his original dream of becoming an architect but rather do something in the financial field. Upon graduating from Ivey, he started his own financial advisory services firm called Vandalay Industries, specializing in latex commodity trading. Vandalay Industries had minor successes until the global financial recession that crushed his company. However, recruiters at Citigroup had been impressed with Vandalay’s knowledge

Debit cards were common in China, with about 300 million cards issued by mid-2001. However, each city had a separate payment gateway to process these cards, so a card from one city often could not be used at the issuing bank’s system in another city. 4 This lack of integration made it very difficult for auction sites to handle debit card payments online. The credit card option was even worse. Because China’s credit system was not developed, Chinese banks were cautious about issuing cards and the application process was complicated. By 2001, there were only about 25 million credit cards issued in China, accounting for less than 1 percent of consumer spending (compared to about 25 percent in the U.S.), and credit cards were accepted at only about 3 percent of China’s shops. As the need for better credit card services intensified in the early 2000s, various institutions responded. In 2001, Bank of China and China Construction Bank started accepting credit card applications online. At the same time, a large number of credit verification companies emerged to help banks work around the lack of a personal credit scoring system in China. These companies checked the backgrounds of applicants through various channels, including meeting the applicants in person. In February 2002, the People’s Bank of China, China’s central bank, announced a project to enable the four largest banks to process cards across cities and banks. In the wake of these changes, China’s

Ian Bremmer profoundly states that he did not witness a global financial crisis. He witnessed a financial crisis with Western, free market, countries while China was not phased because they are the owners of their banks. Additionally, he claims that when one confronts a Chinese citizen and asks of his or her opinion of their government, they are generally happy with their state; unlike their Western counterparts. Ian Bremmer quotes Chinese Premier Wen Jiabo’s definition of state capitalism, “The complete formulation of our economic policy is to give full play to the basic role of market forces in allocating resources under the macroeconomic guidance and regulation of the government. We have one important piece […] that both the visible hand and the invisible hand are given full play in regulating the market forces.” The Chinese government also ensures that they are creating thousands of new jobs each year to create an easier access from poverty to middle class without any social threats. Lastly, a key in China’s state capitalism market is that they have a strong grip and direction on their banking

The 2008 US financial crisis triggered global economic shocks, not only profound influence or even change the financial pattern of the world economy, but also a vivid lesson to the global banking industry. After the outbreak of the crisis, the United States Government has put forward the toughest financial reform bill for decades, expanding market intervention, and with economic globalization and financial liberalization, we need to absorb the experience and lessons of American banking system reform in the context of financial crisis. Citigroup is a typical example of the bank that influenced by the financial crisis and restructured.

China in the 1980s was characterized by the economic reforms of Deng Xiaoping. After the death of Mao Zedong, the new supreme leader of China launched his “reform and opening” program that drastically overhauled China’s financial sector. China wanted access to world markets for trade, investment, and technology. For this to happen, China needed to demonstrate to the world its

Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3(6):882-886 (ISSN:2141-7024) discussion of the findings. Finally we present conclusions and recommendations. LITERATURE REVIEW A non-performing loan is an advance by a financial institution that is not earning income and full payment of principal. As such interest is no longer anticipated (Van Greuning, & Bratavonic, 2003). There is no global standard to define non-performing loans at the practical level. Variations exist in terms of the classification system, the scope, and contents. This pitfall potentially adds to disorder and uncertainty in the non-performing loans subject. For instance, as described by Park (2003), during the 1990s,

The purpose of this paper is to outline the relationship between Chinese and American financial markets. The paper will outline the levels of debt for chines, the major drivers of that debt, and the future consequences of debt levels. The paper will also describe the the structure of Chinese banking system; it will not describe the U.S structure simply because we had a whole semester discussing that material. I believe this research is essential because of the sheer interconnectedness of the global banking system; and the rise of China specifically has implications that should not go misunderstood.