The Hindu Business Line : India-China commercial ties gain more depth

Markers
Chinese business with BoI expected to cross billion-dollar mark soon.
BoI also aims to create trade between China and global trade centers.
It is not China vs India but China and India, says Chidambaram.

Shenzhen March 29 Adding depth to the burgeoning Sino-Indian economic engagement, Bank of India on Thursday opened its first branch in the Chinese mainland. BoI is the second Indian bank to start commercial banking operations in China within a period of six months, underscoring the momentum of trade across the Himalayas, which crossed $25 billion last year.

Speaking at the inauguration ceremony in the southern boom town of Shenzhen, where BOI's China branch is located, the Indian Finance Minister, Mr P. Chidambaram, said that India and China were together driving the creation of an Asian century.

He added that only countries who were jealous of the growth of China and India cast them in the role of competitors, whereas in fact they were friends and collaborators. "It is not China vs India but China and India," Mr Chidambaram concluded.

The Mayor of Shenzhen, Mr Xu Zong Heng, who also attended the function, called the opening of BoI's branch a "breakthrough" in bilateral trade, while the Indian ambassador to China, Ms Nirupama Rao, added that "developing mature banking links is an invaluable part of bilateral trade relations."

Activity hub

In an exclusive interview with Business Line, BoI's Chairman and Managing Director, Mr M. Balachandran, said that the opening of the new branch is not only aimed at facilitating bilateral trade between India and China but at creating a hub for imports and exports between China and several global trade centres such as Hong Kong, Singapore, Indonesia and Vietnam, — countries where BoI has existent branches.

Chinese companies are already doing business worth around $750 million with BoI, he revealed. This business is expected to cross the billion dollar mark before long, much of which will now be routed through the Shenzhen bank which, Mr Balachandran estimates, will have a turnover of $500 million within a year.

BoI's new branch begins operations just a few months after China fully opened up its banking sector under its commitments to the WTO. Under the new rules, foreign banks that wish to enter China face two choices: they can either incorporate as local subsidiaries in which case they enjoy full access to China's retail banking market, or they can open a branch. Capitalization requirements for incorporation are extremely high, making opening branches the preferred option for most foreign banks.

Licence operation

BoI's Shenzhen branch currently operates under a licence that restricts it to foreign currency transactions for a period of two years. After the requisite time has passed, BoI can apply for a level-2 licence which would enable it to deal in Yuan denomination transactions with Chinese and foreign corporates.

The retail market in China, however, would remain largely closed to BoI even down the line, since China allow foreign branches to accept deposits from local individuals of more than RMB 1 million, a sum far beyond the reach of most middle-class Chinese.

The Shenzhen branch has brought with it $25 million in capital, for which the city presented BoI with an RMB $2 million "incentive cheque." Incentive cheques are one of the many measures that Shenzhen has put into place to attract the foreign investment necessary for the city to achieve its ambition of developing into a finance capital to rival nearby Hong Kong.

Miracle town

As a city, Shenzhen is in fact emblematic of the "China miracle" that has grabbed world headlines over the last two decades. The first of the country's special economic zones, Shenzhen was little more than a sleepy fishing town in 1980 when it was chosen along with four other Chinese cities to become the experimental laboratories for China's economic reforms. Just 25 years later Shenzhen today enjoys the highest per capita disposable income in the mainland and is home to the second busiest container port in China, after Shanghai.

In response to a question raised by Business Line about India's ongoing push towards developing SEZs, Mr Chidambaram said that Shenzhen showed that SEZs were especially useful tools for industrial development in areas that lacked pre-existing infrastructure.

Given that it is a fulcrum of the Pearl River delta, China's primary manufacturing hub, over a hundred Indian businesses operate out of Shenzhen, one of the main reasons that BoI chose it as the location for its first China branch.

Other than BoI and State Bank of India, which have branches in China, seven Indian banks currently have representative offices in the mainland and are awaiting licences to begin commercial operations.

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