Burgeoning markets are the targets of acquisition for many Chinese banks. "ICBC will particularly keep an eye on the emerging markets because of the high growth and development potential there, " said Jiang Jianqing, ICBC's Board Chairman, explaining why they took an interest in South Africa's Standard Bank. "Besides, the banking sector in these markets opens up faster to allow in more and more cross-border acquisitions. "

China's banks have seldom gained a foothold in regions enjoying huge business potential such as South Asia, the Middle East, Africa and Latin America, Wang Lijun, General Manager of BOC's Overseas Branch Department, pointed out. But for China's commercial banks, these regions will offer remarkable opportunities for business expansion and growth.

"The Asian market will become a main stage for Chinese banks to carry out their overseas expansion strategies in the coming few years," Guo said. "Compared with the European and American financial markets where the supervision is rigid, the cost is high and the chances are rare for any acquisition, the Asian markets provide huge potential for profits and demand low costs for acquisition. "

Risks and uncertainties

Overseas expansion has never been as smooth as ambitious Chinese banks have expected. For instance, China Development Bank and China State Investment Co. are suffering heavy losses from their overseas investments, respectively in Barclays Bank of England and the U.S. Blackstone Group.

According to Luo, the major problem with Chinese banks' overseas expansion is high bidding. "Even some large mature banks will make such mistakes," said Luo, citing the famous deal of the Development Bank of Singapore (DBS) acquiring Hong Kong's Dao Heng Bank in 2001. DBS merged Dao Heng at a price three times higher than its book value, and as a result a term "Singapore premium" was created to refer to acquisitions at a high price in the international financial market. Currently, in other fields of merger and acquisition, the term "China premium" is prevailing. Whether it will be frequently referred to in the banking acquisition lexicon remains a question.

Furthermore, lack of experience will also bring Chinese banks great risks in cross-border acquisitions.

"Apart from economic risks, there are also risks related to politics and sovereignty," said Peng. "Some Western countries, in fear of China's rapid economic growth and globalization progress, will consolidate their political intentions and foment nationalist agitations in its people."

High-quality services are the only key for Chinese banks to tackle overseas markets, according to Guo. "The biggest risk rests with whether they can adapt their management style to the needs of overseas operations," said Guo. Guo also pointed out that China's commercial banks, except for the Bank of China, all lack experience in overseas operations and remain domestic bank in terms of their management, business concepts, and the competitiveness of their staff.

Overseas Acquisitions by Chinese Banks The Industrial and Commercial Bank of China (ICBC) October 2007: The ICBC announced it would acquire a 20-percent stake in South Africa's Standard Bank for $5.5 billion to become its largest shareholder. August 2007: The ICBC paid $583 million for an 80-percent stake in the Seng Heng Bank of Macao. December 2006: The ICBC acquired a controlling 90-percent stake of the Bank Halim of Indonesia, which marked the world's largest lender's first overseas acquisition. China Development Bank (CDB) July-August 2007: The CDB signed a purchase agreement and a cooperation memorandum with Barclays Bank of England on July 23, and paid $3 billion for a 3.1-percent stake in Barclays' existing share capital in August. China Construction Bank (CCB) August 2006: The CCB agreed to buy out the Bank of America's Hong Kong and Macao operations for $1.2 billion.