Research On The Overseas Investment Strategy Of China’s Commercial Banks:Motivations, Modes And Performance

Since the beginning of21st Century, Chinese banking industry has accelerated the pace of cross-border investment. Previously domestic researchers have focused on the cross-border investment of the listing companies, while the studies on the banking industry, especially those on strategic issues are relatively rare. Practitioners, at mean time, must rely solely on past experiences in making strategic decisions, and are in urgent need of the inspiration from academic circle.In this paper, the author hopes to establish a relatively clear research frame and make a thorough analysis on this issue. The strategy problem is decomposed into three aspects, namely the motivations, modes, performance. At the same time, according to the latest development in theory and practice, the bank cross-border investment was divided into three levels:greenfield, mergers and acquisitions, and strategic alliances (previously only divided into greenfield and mergers and acquisitions). The innovation points of the thesis are:firstly, the author proposes a new analysis framework to study cross-border strategy; secondly, the author makes systematical empirical analysis on greenfield investment and M&A in banking industry; thirdly, starting from the basic conclusion of strategic alliance of resource view, and with the help of game theory analysis method, the autor establishes a model on alliance structure selection.This paper adopts both the method of theoretical research and empirical analysis in this paper. For greenfield investment and M&A, this paper mainly adopts the empirical analysis method; while for cross-border strategic alliance, uses theoretical model analysis method and case study.The study found that, overall, cross-border operation is detrimental to performance for Chinese banks. Whether a bank will make cross-border investment, mainly depends on its asset size, with the bank’s profitability and innovation irrelevant. The growth of cross-border assets has a close relationship with the growth of China foreign trade and foreign investment. In the aspect of regional selection, economic and trade relationship are the most important factors, followed by risk status, institutional factors, while the size of the target market is not important.In cross-border M&A decision-making, economic factors, cultural factors and market factors play important roles. In the choice between cross-border acquisitions and greenfield investment, the higher cultural similarity and the lower concentration of local banking industry, the bigger the possibility of entry through M&A. Cross-border M&A of listing companies obviously causes destructive effect to their performance, and comparatively the destructive effect is lower for banks. The larger the relative size of transaction, the greater the damage; while the acquirer operating period is positively correlated with the performance.As the new mode of the bank cross-border investment, strategic alliance is expected to play a more and more important role in the future. Whether a strategic alliance will take the form of minority stakes or joint ventures, mostly depends on common value, and has nothing to do with bargaining power of each side. Bargaining power can only determine which side need to transfer payment to the other party, and the size of transfer payment in a given alliance structure.On the basis of the above research, this author gives suggestions to Chinese banking industry in terms of cross-border operation. For regulators, the author suggest that besides overall planning, they should also consider the different situation of each bank, and give them differential treatment. Regulators should also cancel the number and area restrictions to commercial banks as soon as possible, allowing commercial banks making their own choice. At the same time, regulators should provide support to commercial banks in areas of performance evaluation and foreign regulatory coordination. For commercial banks, the author give our suggestions in formulating the overall strategy and regional strategy, advancing local operation, seizing the opportunities of acquisition, establishing alliances and strengthening talent reserve.