The Geoeconomics of Chinese Bank Expansion into the European Union

Abstract

We apply the concept of geoeconomics to the example of Chinese state-owned commercial banks based in Luxembourg and their financial activities in the European Union. The case study links the uneven relationship between China and Luxembourg to the field of international finance via large Chinese state-owned banks as important but analytically neglected actors. In doing so, we analyze how economic resources are used by, through and between nation states in the pursuit of their strategic goals. Starting from the observation that Chinese banking networks primarily provide a platform for the implementation of direct investments by Chinese companies, we identify important mechanisms and practices of Chinese banks, their anchoring in Luxembourg and the limited fulfilment of Western policy makers’ expectations from the presence of the Chinese banks in Luxembourg. Furthermore, we analyze instruments and strategies that define important aspects and dimensions of the concept of geoeconomics and complement them with the agency attributed to Chinese banks. An interesting paradox emerges from our analysis: while the geoeconomic power of Chinese banks’ activities is limited by the strict adherence to Chinese state development guidelines, the new organization of the Chinese banking networks in the EU suggests that they will be able to exercise their geoeconomic power in the future; with corresponding implications for local economies and economic development in Europe.

Locating state capitalism: Financial centres and the internationalisation of Chinese banks in London

“…Given my focus on banks headquartered in China and their internationalisation strategies from this position, my analysis also excluded HSBC which is in itself an interesting case of bank internationalisation because of its long history of cross border banking. The detail of this case lies beyond the remit of this paper although for wider analysis of Chinese bank internationalisation see Balmas andDörry, 2021 andPan et al, 2018).…”

“…Through a focus on Europe she traces how the political links between banks and the state have been transformed through post-communist transition, monetary union and more recently through economic crisis. Meanwhile, Balmas and Dörry (2021) document the use of the branch-subsidiary model by Chinese banks as they seek to expand their global operations into Luxembourg. In particular, they locate this within the wider political strategy of financial opening being pursued by China.…”

“…This builds on work that has examined earlier rounds of Japanese, European and American banks in the City (Battilossi and Cassis, 2002; Tickell, 1994; Kynaston, 2002). Given the growing role of China within the international financial system (Hall, 2021), more recently, this literature has been expanded to include the case of Chinese bank expansion (see Balmas and Dörry, 2021 for example).…”

“…However, there has been considerable competition amongst financial centres in Europe to position themselves as the leading western offshore RMB centre and Hong Kong's own relationship with mainland China in financial services has become more strained. In terms of banking, this competition has been particularly intense between Luxembourg and London with Luxembourg using its lower levels of regulation to attract the European headquarters of CCB, ICBC and BOC (see Balmas and Dörry, 2021). At this stage, the internationalisation strategy of Chinese commercial banks moved beyond its earlier regional focus and became increasingly concerned with opening branches, usually through organic office opening rather than mergers and acquisitions, in offshore RMB centres, including London.…”

Hierarchical tendencies, functional specializations, and (in)stability across European banking centers

“…And finally, there continue to be developments in what is often seen to be part more "classical" types of banking. Hall (2021), for example, recently detailed how the London banking sector has been further strengthened by becoming the leading Western center within the wider Chinese economic and political project of internationalizing the renminbi (RMB), while Luxembourg hosts the largest headquarters of Chinese banks that design fund structures for RMB investments in BRI (Belt and Road Initiative) countries and is a major center for listing RMB-denominated bonds (Balmas and Dörry, 2022). The first more concrete objective purpose of this article, therefore, is to examine the size of the presence of leading global banks across functional urban areas (FUA) in Europe.…”