London's belated courting of Chinese banks will pay off
Donald Gasper lauds the financial hub's adoption of a pragmatic attitude
Britain's Chancellor of the Exchequer George Osborne blundered when he claimed recently that 160 million Chinese watched the popular British period television drama Downton Abbey.
But the minister, on a trade mission to China with London Mayor Boris Johnson, was right to say the perception of China as simply a "sweatshop" was outdated: "This is a country that is right at the forefront of medicine and hi-tech and computing and hi-tech engineering and all of that. It is a very rapidly changing country."
Waking up to the fact that mainlanders are now the world's most valuable tourists who last year spent US$102 billion during their overseas travels, Osborne announced that new measures would make it easier for tens of thousands of Chinese tourists to obtain visas to visit the UK. In addition, Chinese businessmen will now be able to apply for "super priority" visas that are processed within 24 hours.
And, speaking in Beijing, the chancellor said: "A great nation like China should have a global currency." It should seek to develop the renminbi "through the international centre of finance, London", he added.
In a column on these pages last December, I warned that measures introduced by Britain's Prudential Regulation Authority preventing Chinese banks from opening branches in the UK were likely to backfire. The measures "could drive banks to withdraw from Britain's capital," I said, which would undermine London's ambition of building on its position as a major centre for trading in the renminbi.
I was proved right. Within a few weeks, China's three biggest banks had all switched their European headquarters to Luxembourg.
The UK looks as if it is about to drop this counterproductive policy. Osborne said this month that the authority would invite leading Chinese banks to discussions about establishing fully fledged branches in Britain instead of just subsidiaries.
The difference is crucial: branches would have access to their huge resources in Beijing instead of having to rely on what capital they hold locally. They would also operate primarily under the supervision of China's own banking regulator.
Although US banks already have scores of branches in the UK, some have reacted negatively to the news of the concession being offered to their Chinese counterparts, with one senior banker sneering at what he called "a crazy lovefest" between Britain and China. Some lawyers were also critical of government "interference" into the affairs of the regulation authority.
The authority's policy insisting on "subsidiarisation" of foreign banks was intended to tighten regulatory control, following the 2008 crisis. At that time, Britain was heavily hit by the collapse of Iceland's Landsbanki, which jeopardised customers' deposits in the UK online unit Icesave.
But China's state-owned banks emerged several years ago as the lenders with the healthiest capital reserves in the world. Not being dependent on flighty foreign investors, they are not vulnerable to the runs that brought down some Western financial institutions five years ago. In any case, the lighter touch the authority would now apply towards them would cover only wholesale and not retail banking.
London's new pragmatic approach makes sense and should be borne in mind by other aspiring financial centres.
Donald Gasper is a Hong Kong-based journalist and commentator