JPMorgan has announced it will go “full force” in China to take on the state-run Industrial and Commercial Bank of China (ICBC), which is the biggest bank in the world, according to a report by Bloomberg.
The U.S. company has won approval for a majority stake in a Chinese securities joint venture. It aims to get complete ownership of its businesses in China when the rules change to allow them to do so, which is expected to happen sometime in 2020.
The idea of having unrestricted access to China could potentially compel other major global banks to follow JPMorgan’s lead, as new regulatory changes in the country will let financial firms establish themselves. However, to be successful, they will need to be able to compete with state-run banks, which currently control the financial system.
“JPMorgan will need to be selective around the businesses they choose to be active in order to carve out a meaningful competitive foothold in China,” said Benjamin Quinlan, chief executive officer of financial services consultancy Quinlan & Associates, located in Hong Kong. “I don’t think they will ever contend against ICBC, given the sheer size of resources at ICBC’s disposal.”
ICBC became the biggest bank in the world after the financial crisis. As U.S. firms were still trying to recover, banks in China pumped up lending and funded a generous economic stimulus package.
Measured side by side, ICBC assets are around $4 trillion versus $2.6 trillion for JPMorgan.
“ICBC has simpler businesses in China, focused on lending,” said Chen Shujin, chief financial analyst at Huatai Securities Co. in Hong Kong. “Foreign banks may have been more impacted by the global financial crisis, as they have a wider range of offerings such as investment banking and derivatives.”
There are still some metrics where JPMorgan has the lead, such as price-to-book ratio, but ICBC is more profitable by far. The bank’s net income will most likely surpass JPMorgan’s by at least 40 percent, and that gap is expected to continue to widen.