ICBC aims to rival HSBC and Stanchart in the Middle East but China has its own problems

Normally any bank tilting its lance at HSBC and Standard Chartered Bank in the Middle East could be dismissed with a knowing smile. But not when that bank is one of the largest in the world with $1.9 trillion in assets and the booming Chinese economy behind it.

Step forward the Industrial and Commercial Bank of Bank which first established itself in the region in the midst of the global financial crisis of 2008. The state-owned bank has branches in Abu Dhabi and Doha and a subsidiary in Dubai and is applying for a license to develop a retail network in the UAE.

Chinese competition

These ambitions place ICBC in direct competition with HSBC and Standard Chartered whose origins are also distinctly Chinese as they started in Hong Kong although have since moved their headquarters to London. Both these Western banks already offer yuan deposit accounts to local traders in anticipation of moves to internationalise the Chinese currency to compete with the euro and dollar.

Bilateral trade has surged in recent years with China now the second largest UAE trading partner after the US as Euromonitor International points out this week, and the 200,000 Chinese UAE residents outnumber the British.

The big Western banks clearly have enough on their plates at the moment with a second round of the global financial crisis upon us this autumn, and competition from China is hardly welcome in a sphere like UAE banking where the international banks have a cosy oligopoly and charge more or less what they like while paying generous salaries.

Moreover, the move by the ICBC is most likely just the tip of an iceberg as far as overseas expansion by Chinese financial services companies is concerned and will facilitate two-way investment flows.

China crisis?

China is particularly concerned to secure natural resources to keep its fast-growing economy on an expansion track and is looking to forge closer ties with the UAE. However, there are mounting worries that Chinese economic growth is failing this year as the huge stimulus pumped into the domestic economy three years ago has resulted in a runaway real estate boom and surging debt levels.

If the worst fears of hedge fund managers like Jim Chanos – who made billions shorting the subprime crisis – are realized then China is ‘Dubai x1,000′, a reference to the real estate crash in the emirate almost exactly three years ago. A banking crisis would surely follow.

That said state-owned ICBC will most likely still keep up its push into the Middle East as a priority whatever the domestic problems at home, particularly as the Oil States may be among the only countries in the world to grow during another global recession because money-printing by central banks will keep oil prices high.