Time for new strategies in the mainland

JPMorgan aims to help domestic, foreign companies across borders

As the senior leader-ship of China has articulated the need to encourage market-driven behavior to promote efficiency and economic growth, many companies are re-evaluating how they do business in China.

Brett Krause, president of JPMorgan Chase Bank (China) Co Ltd, told China Daily: "As the Chinese reform agenda has taken shape, a growing number of companies are saying, 'the rules around banking are changing and the regulatory environment is starting to look quite different. With the relaxation of cross-border restrictions, we need to think about how to restructure our finance operations in China to be more integrated with the rest of Asia or the world.' In the coming years we are going to continue to see more and more clients re-evaluate how they are organized in China."

Many economic reform policies, which Krause said he regarded as change catalysts, have been designed to open up the financial sector and promote the internationalization of the renminbi.

Apart from supporting Chinese companies that are going global, JPMorgan is also working to help global multi-nationals leverage and use the surplus liquidity they have accumulated in China.

"The opening-up of the Chinese financial sector is an opportunity for us to support our clients in their global business. Regulatory changes related to control over capital-account and current-account items allow companies to better deploy and use their surplus funds and capital in China," he said.

He cited the case of Bunge Ltd, a global agribusiness company, where the bank helped set up a yuan-denominated cross-border inter company loan facility in the China (Shanghai) Pilot Free Trade Zone. The intercompany loan mechanism, executed in December 2013, established a two-way channel for funds to move efficiently between Bunge's regional treasury center in Singapore and its China headquarters in the FTZ.

With the opening-up of Chinese financial markets, international banks are seeing the benefit of having strong renminbi capabilities.

JPMorgan organizes its business for customers in the Chinese mainland, Hong Kong and Taiwan, where people have seen increasing funds flows in the renminbi. The bank has developed solutions that further integrate with London, which is gradually becoming a more important renminbi clearing center.

"In our locally incorporated bank in China over many years, we have built up our renminbi balance sheet and our local payments, collection and liquidity management capabilities. We are well-positioned to help clients use the renminbi globally," he said.

Little by little, the renminbi will become a more freely traded currency, and eventually a reserve currency, although the latter is still a number of years away.

"I don't think we should expect that transformation to happen overnight," he said. "It's going to be a gradual process, in part, because China wants to approach this systematically and strategically to ensure that the opening of the renminbi is successful."

At present in China, there are test market programs in the capital markets, in derivatives and in trade finance and liquidity management. "In many areas, we are going to see a lot of incremental refinements in products, probably more so now than at any time since China's entry into the World Trade Organization," Krause said.

One of his priorities in China is to keep JPMorgan as a leader in delivering quality products and services. The bank will continue to foster a culture of innovation and invest in research and development to improve its systems by leveraging the latest technology.

As China's economic growth has slowed, some foreign companies have changed their strategy in China. But JPMorgan is not going to change its strategy in China based on month-on-month, quarter-on-quarter, or even year-on-year macroeconomic figures, Krause said. "We are here for the long run. We believe regardless of the pace of reform, it is coming and with it we will unlock more opportunities for banks like our own."

The other way to look at the downturn is that banks really prove themselves to their clients at times of economic stress. If the clients are facing slower sales growth, usually that is where the banks build real long-term loyalty by standing by their clients, Krause said.