A Study On The Options Of Chinese Commercial Banks' External Expansion

With economic globalization and financial liberalization in-depth development, the trend of commercial banks participate in international competition by the way of external expansion is become popular and popular in the worldwide. Since 1980s, lots of countries'governments have relaxed the control of the country's financial sector and give them more free policies. Then financial globalization and liberalization has been a rapid development, commercial banks have got lots of profits by the way of external expansion. Banking is an important part of the national economy, through the external expansion can achieve more competition in the international market competition and world-wide profit. Chinese commercial banks have grown fast during the time of China economic development, and their levels of management and service have grown in the past. In the current international economic background, Chinese commercial banks should also seize the opportunity to accelerate the pace of external expansion in order to gain more international market returns. How to select the best way of external expansion for Chinese commercial banks'situation is an important issue.The theories of external expansion were most focused on the multinational corporations in the manufacturing industry in the past. On the other side, banking is a special service industry. The theory of banking expansion abroad is still lack now. This paper attempts to take game theory as a research tool, and references the theory of multinational corporation to make a choice of Chinese commercial bank's external expansion way. There are two ways in expansion abroad for multinational corporation: one is the Greenfield investment; the other is the cross-border mergers and acquisitions (Cross-border M&A). This paper takes Chinese commercial bank, the host country bank and host government as the main partners of the game to discus their own optimal strategy under the two approach of external expansion. In choosing the manner of external expansion, there are three factors for Chinese commercial banks to consider: they are the technological level of the host country banks, the host country market economy as well as preferential policies provided by the host government. If the level of banking technology in the host country is low, the host country market economy is relatively backward, and the host government encourages new investment, Chinese commercial banks should choose the way of Greenfield investment in these countries and regions; in the opposite, Chinese commercial banks should choose the way of cross-border M&A.Chinese commercial banks'development of external expansion is still at the preliminary stage. There is a big gap between our banks and other advanced cross-border banks. The number of truly multinational banks in the domestic financial market and branch of the Chinese commercial bank in the oversea financial market is very small. The use of Greenfield investment in Chinese commercial banks expansion abroad is more than cross-border M&A, and both the quality and the quantity of the external expansion all can not meet the need of international banking competition. The reason of Chinese commercial banks themselves is the poor way of management and operation, and the less of financial market system and regulatory standards is also important. If Chinese commercial banks develop their ability of management and service level, and our government improves the financial system and relevant laws, Chinese commercial banks'external expansion competition will be largely promote.