LONDON, June 3, (Agencies): China could leapfrog the United States to become the world’s largest banking economy by 2023, 20 years earlier than expected, raising pressure on western banks to brush off the effects of the credit crisis and head east.
According to a report published by consultants PricewaterhouseCoopers (PwC) on Friday, India is expected to leapfrog Japan to rank third in terms of domestic banking by 2035 — and could pass China as its population rapidly ages.
PwC’s chief economist John Hawksworth urged current banking leaders, whose power has been sapped by the credit crisis, to heed the accelerating shift in global economic power and claim a share of emerging markets’ relatively unbanked populations.
“With populations of well over a billion each, access to markets like China and India is critical for growth,” he said.
Chinese banks already dominate global rankings by market value, and some lenders have already secured heavy emerging market exposure to tap into booming demand for financial products from young and increasingly wealthy populations.
Banks in the fast-growing emerging markets (E7) of China, India, Brazil, Russia, Mexico, Indonesia and Turkey have been relatively shielded from the financial crisis that brought many western peers to their knees and sent asset values plunging.
With watchdogs determined to rein in institutions that presided over an exuberant era of high-risk expansion that culminated in a rash of taxpayer-funded bailouts, western banks are also contending with tough new regulations, which are curbing lending growth, while domestic populations age.
PwC, which based its report on projections for GDP and domestic credit and used net interest margins as a measure of profit, said E7 growth hinged on state investments in infrastructure, opening markets to fresh competition, reducing bureaucracy and budget deficits and increasing rural education.
It predicts that global banking assets could quadruple to around $300 trillion by 2050, with the GDP of the E7 level pegging with the G7 nations of the United States, Japan, Germany, the UK, France, Italy and Canada within the next two decades — and well ahead within the next four. Britain, which it ranks fourth in terms of domestic banking assets, is expected to be pushed into fifth place by India within the next 20 years before fast-growing Brazil is likely to push it down another notch by 2050, PwC predicted.
But investing in emerging markets can be an uphill struggle.
“The E7 doesn’t need the G7 for capital, decision making or consumers, so the established economies will have to make a strong case to convince new economy policy makers of the benefits of inviting foreign competition in,” Hawksworth noted.
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BEIJING: China is likely to significantly loosen its grip on the yuan in the next few years as Beijing seeks to make the currency more widely used overseas, a top bank official was quoted saying Friday.
China Construction Bank chairman Guo Shuqing, who some analysts have tipped as a possible future central bank chief, said the yuan could become convertible under the capital account in five years, the Wall Street Journal said.
“That doesn’t mean there’s no regulation, but cross-border transactions could be normal like other countries,” Guo told the newspaper in an interview.
China Construction Bank is one of the country’s “big four” banks.
Beijing currently strictly controls the flow of yuan in and out of China to protect the country from speculative investors and turbulence in the global economy.
Overseas investors require state approval to swap foreign currencies for yuan to make investments in China while domestic companies and individuals also need special permission to convert yuan for major projects abroad.
In recent years Beijing has relaxed its limits on the convertibility of the yuan in its push for greater use of the Chinese currency abroad.
The country has signed currency swap arrangements with several nations and launched trials for yuan trade settlement with a number of mainly Southeast Asian countries.
Yuan-related financial products have also been booming in Hong Kong, a semi-autonomous Chinese territory, which has been acting as a test bed for Beijing’s ambitious goal to turn the unit into a global currency.
Guo, who previously headed the central bank’s division that manages China’s giant foreign-exchange reserves, also expressed confidence in the dollar given the ongoing sovereign-debt crisis in Europe.
“The US will always be the best option, or at least a relatively good one, to put our money” into thanks to its strengths as an innovation-led economy, he said.
China’s foreign exchange reserves, already the world’s largest, soared to a record $3.0447 trillion at the end of March.
The bulk of the money is parked in the low-yielding but relatively safe US Treasury bonds but since the global financial crisis China has been investing a a growing portion in euro-denominated assets.