The Study Of Foreign Direct Investment Modes Of Commercial Banks Of China

Recently, under the background of the RMB appreciation, our rising foreign exchangereserves and the booming capital market, the market value of some commercial banks ofChina soared to the advanced international level that some big banks have achieved already.This undoubtedly stimulates our country’s banking sector, making many banks have toexpand their business overseas. Internationalization of the banking sector is inevitable, and itis also an effective way to enhance competitiveness of commercial banks in the context ofglobalization, which means a lot to commercial banks in China. So it’s very necessary for usto analyze different modes for commercial banks’ overseas investment, and explore the mostfavorable one.Greenfield investment and mergers&acquisitions are the main models for commercialbanks’ foreign direct investment, specifically including the establishment of representativeoffices, agents, branches, subsidiaries, and joint-venture banks. The two investment modes’adaptation varies. Large banks that of strong strength, high level of management andadequate capital tend to choose mergers&acquisitions mode when they decide to invest inSoutheast Asia countries, which have great similarity in culture with China. While smallbanks with poor management and low capital adequacy that choose to invest in countries thatare at large distance with China, will generally adopt greenfield investment to reduceinvestment risks of failure. Many factors will influence the modes that commercial bankschoose to enter the host countries, including the capital scale of the banks themselves, thebank’s management skill and capital adequacy ratio, the market concentration degree of thetargeted country and the development level of the targeted country’s economic freedom,investments between home country and the host country, the bilateral trade volume, andcultural distance. When commercial banks conducting overseas investment, they should takefull account of these factors, and choose the most suitable way to invest in order to avoidinvestment risk of failure.This paper includes a total of six sections, dividing into introduction, literature review,analysis of current situation of foreign investment banks, empirical analysis, case studies andconclusions and policy recommendations. The paper describes two modes of foreign investment in the banking sector and makes a comparative analysis, and also elaborates onthe banking FDI mode selection theory. Based on this analysis of the banking sector’s foreigndirect investment, the paper makes empirical analyses combined with China’s majorcommercial banks’ foreign investment situation. Finally we draw the conclusion that strongerthe bank’s capital adequacy ratio, the lower the level of control in host country, and the moreclosely with the host country, the commercial banks more likely to choose the cross-bordermergers and acquisitions way to enter the host country.