VideoLast January, Michael Barrett stood before a group of more than 20 Chinese bank employees in a Guangzhou conference room. Barrett, the CEO of GE Money China, was there to direct what GE calls a "workout session" — the lively brainstorming meetings the company holds to wring inefficiencies out of processes. In October 2006, GE Money had just launched a credit card with Wal-Mart and Shenzhen Development Bank (SDB), a Chinese bank in which GE has agreed to invest $100 million — a 7 percent stake. Chinese financial institutions aren't known for speedy customer service — it generally takes them more than a month to put a new credit card into a customer's hands — and GE was eager to get these cards out faster.
The session got off to a slow start. Bank employees weren't accustomed to GE's interactive style, which calls for employees to step up, share stories, and scrawl their thoughts on flip charts. But Barrett, a New York native with the build of a linebacker and the confidence of someone who has risen quickly through GE's ranks, threw himself into the task, jotting down ideas and posting them on the wall.
The Chinese participants, it turned out, had plenty to say. The bank's system for credit-card approvals frustrated them. Application forms were cumbersome. When one shift finished its work and the next began, delays were the rule. "After an hour, people got very excited," says Barrett. "That's what we want." By day's end, the group had a list of steps for tightening the process, from streamlining application forms to assigning every pending application to a particular agent.
No Time to Lose
GE Money's eagerness to press ahead in the face of uncertainty should come as no surprise. This year, China swings open the doors to its financial-services market and in anticipation, global banks such as Citibank, Standard Chartered, HSBC, and Bank of America, along with nonbank players such as GE Money, have been buying stakes in China's banks.
None of them will have an easy time. China's banking sector is weighed down with bad loans, bloated payrolls, and unhappy customers. But the companies that can make their Chinese partnerships work win a tantalizing prize: a chance to tap into potentially the world's biggest consumer-finance market.
The consumer-finance arm of GE, GE Money is one of its fastest-growing divisions, with businesses in 57 countries and markets. Over the course of hundreds of acquisitions and partnerships (many of them in Asia), GE Money has earned a reputation as a savvy and adroit dealmaker. In particular, the company is admired for its ability to cross cultural barriers and integrate its operations with those of its partners, even in tricky markets such as Japan and Latin America.
If GE's integrate-and-grow model works in China, one of the most daunting markets for multinationals, its approach is bound to be imitated. If it doesn't work, the prospects for other financial institutions to work with China's rickety banks may be called into question.
Early on, GE took a cautious approach to investing in China. GE Capital (GE Money's predecessor) began offering consumer financing for electronic appliances in southern China with a Chinese partner in 1998 only to shut it down two years later, citing tepid interest from Chinese consumers.
Conditions have certainly improved since then. The consumer-finance market has liberalized — this year, foreign-owned banks can begin lending directly to Chinese customers. According to analysts, consumer finance in China is finally ready to take off. The Chinese consumer-credit market (cards, mortgages, and personal loans) will account for 14 percent of banking-sector profits by 2013, up from around 4 percent now. Credit-card revenues will rise by more than 50 percent a year, reaching $5 billion by 2013. The country's growing car market is creating demand for auto loans, while mortgage volume grew an estimated 18 percent in 2006, according to May Yan, a vice president with Moody's who expects much higher growth in the coming years.
Barrett is optimistic. "This country is in its infancy in terms of consumer financing," he says. "It's a tremendous opportunity for us."
A Stairway to Profitability?
Shenzhen Development Bank is based in the heart of its hometown, a city of 10 million that has sprung up from virtually nothing in the past 25 years. Like Shenzhen itself, the bank is young — it was one of several privately owned banks established in the late 1980s. As if to make the point that it is a part of a newer breed of Chinese financial institutions, the bank has built for itself one of the city's most unusual office buildings: a postmodern structure that resembles a giant set of stairs.
Despite appearances, the bank suffers from some old-fashioned woes. For many years, it operated in a decentralized manner, with branch managers making ill-considered loans with little, if any, oversight from headquarters. As a result, 7.9 percent of its loans are probably uncollectible. (Overall, 9.2 percent of loans held by commercial banks in China are considered "nonperforming.") Furthermore, it has little cash. Chinese banking law requires banks to maintain at least an 8 percent capital adequacy ratio, but SDB has only 3.7 percent, meaning that it is not permitted to expand into new cities. Moody's gives it a financial-strength rating of just E+. "That's one of the lowest ratings for a Chinese bank," comments Yan.
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