China's Role in Africa's Banking Sector

While China is now Africa's largest trade partner, the finance services provided by Chinese lenders to facilitate trade and investment in Africa advance the financial markets throughout the continent.

Industrial and Commercial Bank of China (ICBC), the world's largest lender by market value, can be regarded as the pioneer in this movement when it purchased a 20-percent stake of Standard Bank Group, Africa's biggest lender by assets, in 2008. Earlier this year, Standard Bank stated it aims to boost its strategic cooperation with ICBC with a particular focus on Africa. Although the current stakes of Chinese banks in African lenders are relatively small, increasing cooperation between the two sides based on more shareholdings to facilitate mutual economic ties can be expected in the future. Furthermore, Sino-African financial ties transcend the corporate level as the Export-Import Bank of China, one of the country's major policy lenders, also holds about a 2.5-percent share of the African Export-Import Bank.

In October 2010, ICBC and Standard Bank initiated a direct cash management system, which allows Chinese companies to reduce their financial risk by implementing real-time monitoring of the capital flow of their African projects and managing their African bank accounts in China. China Gezhouba Group Corp. and Wuhan Iron and Steel Group were the first two clients of the management platform, which is available to the more than 1,600 Chinese enterprises registered to business in the infrastructure construction and trade businesses in Africa.

Other Chinese banks are also increasing their presence in Africa. In July, Kenya's central bank granted the Bank of China (BOC) approval to open a representative office in the county, as trade ties continue to strengthen between the two countries. The BOC will explore potential business opportunities in the country with a view to evaluating the prospects of a long-term presence in Kenya and the wider East African region.

Chinese companies and their lenders are not the only benefactors. African banks closely engaged with their increasingly visible Chinese counterparts stand to expand their know-how in facilitating international trade. In a recent report the World Bank outlines some of the key challenges facing Africa's banking sector which include inefficiencies, poor credit culture, and low levels of banking penetration, all problems China has had to overcome in the path of its own development. The sharing of Chinese banks' past experience will undeniably help advance Africa's banking sector.

The ChinAfrica Econometer is produced by The Beijing Axis, a China-focused international advisory firm operating in four principal areas: Commodities, Capital, Procurement, and Strategy.

For more information, please contact:

Daniel Galvez, danielgalvez@thebeijingaxis.com

www.thebeijingaxis.com