The great leap forward: The marketing of banking services in China

MA-Thesis / Master von Carla Vieira

Abstract:

Generally speaking, economic growth is closely related to the efficiency of a country’s financial markets. That is, the more varied the investment alternatives by which economic resources can flow within a country and between countries, the more efficient the financial market. This efficiency leads to a higher level of capital formation, and improved capital utilisation, thereby increasing the utility of both savers and borrowers and promoting economic growth. In line with its transition to a market economy China has, amongst other reforms, embarked on a reform of its financial system, transforming its one-bank monopoly into an integrated system of many banks and other specialised financial institutions. The resulting market complexity and the emergence of domestic and international competition gave rise to the marketing of financial services in China.

Despite banks’ increasing marketing sophistication and higher spending on marketing, consumer behaviour is only beginning to react to it. On one hand the emergence of a wide variety of financial institutions and financial products has offset the impact of the social system reform on individuals’ lives. On the other hand, most Chinese still stay with one of the four wholly state-owned commercial banks, perhaps out of habit, perhaps from a feeling of security with their old banks.

The effect on banks has been dramatic, service levels have improved greatly while product quality and variety have become better. However, the lack of market segmentation, partly due to government regulation, limits banks’ abilities to effectively target consumer groups, (which also hinders consumers’ information gathering and decision-making).

Transformation of banking is hindered by China’s poorly performing corporate sector, which strongly undermines banking profitability. China remains one of the weakest countries in terms of strength of the financial sector (Moody’s), and the imminent WTO entry might result in disarray in the financial industry. Foreign banks with their sophisticated marketing have already put strong pressure on their Chinese counterparts, who are learning quickly. In the long run, the WTO entry and increased openness of the financial market will increase the competitiveness of the marketplace and enhance the development of the marketing of financial services in China.

This dissertation will be divided into two parts. In the first part I will be talking about China’s transition to a market economy, major reforms and their effects and about China’s economy today. First I will address the major outside forces which have a direct impact on the profitability of each banking segment and about the PBOC and its function.

This will be followed by an overview of China’s financial industry so that the reader has a better understanding of the alternative choices Chinese consumers have. The main weight is on domestic and foreign banks and their role for the corporate sector and the economy. In addition to that I will be talking about the WTO accession and the impact on the financial sector and marketing.

In the second part I will survey Chinese and foreign banks’ marketing activities. From there I will analyse Chinese consumer behaviour in regard to financial products and will end with a summary of the findings and the conclusion.

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