This week, China’s big four state-owned banks are set to announce their 2013 financial results. And the numbers, if predictions are accurate, should show a significant slowing in earnings growth across the board. Likely 11% year over year growth for a combined net income of approximately $130 billion. So solid growth in a very big number, but also their lowest growth rate since the 2008 financial crisis. This big drop-off is a good symbol of the myriad forces that are currently buffeting Chinese state-owned banks. Chinese banks, more than at any time in the past twenty years, are in the eye of a very big storm. A quick look at the forces they are dealing with right now is daunting: The People’s Bank of China is pulling back from the credit-led investment surge of the last several years. Interbank rates are being raised and the country is weaning itself off the debt-fueled GDP growth that saw itself through the financial crisis. This pull-back directly impacts the state-owned banks, which have been the primary mechanism of this lending. Loan growth shrunk to 14% in 2013, the lowest level seen since 2005. Additionally, the interest rate caps which have created impressive profitability on bank deposits are now being loosened. This, combined with the lending pull-back, is a fairly fundamental change to the profit engine that has fueled state-owned banks for the past decade. Meanwhile, shadow banking continues to grow, offering higher investment returns and creating increasing competition for deposits. State-owned banks have seen their share of Chinese household savings drop from 55% to 50% in the past year. The recent free-for-all in credit going out the door is also starting to come home to roost as NPL rates start to rise, especially on single project local government financing vehicles. Another type of competitor is also taking the field. The Chinese Banking Regulatory Commission (CBRC) has recently given approval for five private banks to be set up. These trial banks are being created with the announced goal of increasing competition in the sector (i.e., for the state-owned banks). Finally, we have government policy reforms that accept a slower growth rate and focus on shifting away from an export and investment-led model. This shift away from “growth at all costs” will slow bank growth and lending. So state-owned banks are dealing with a change in their traditional profit engine, a decrease in lending, increased risk, increasing competition on two fronts, and a slowing overall GDP. Suddenly, an 11% increase in earnings last year seems pretty impressive. And finally, there is the wild card of the Internet giants moving into online banking. These companies are proving to the great disruptors in industry after industry in China. Their sudden launch of online products in 2013 was a surprise and their aggressive adoption by Chinese consumers has knocked the state-owned banks back on their heels. They quickly followed this with the introduction of credit cards, which was quickly halted. The Internet companies are the wild card in the banking sector and should likely provide some surprises for the banks in 2014. Does this spell disaster? No – with over 100 trillion renminbi in deposits, the Chinese banking system faces no funding stress. And earnings remain collectively over $100 billion per year, which is healthy and well ahead of the $80 billion generated by the four leading international banks. But they are definitely in the eye of a very big and interesting storm. Jeffrey Towson is Managing Partner of Towson Capital, advisory private equity firm. Jonathan Woetzel is a Director in McKinsey & Company’s Shanghai office, and the Director of the McKinsey Global Institute in Asia. They are Professors at Peking University’s Guanghua School of Management, and are the authors of The One Hour China Book, now available on amazon.com.