A License to Invest

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Germany's top bank is opening a new chapter in its 145-year history in the Middle Kingdom. Picture source: Reuters

Deutsche Bank is considering applying for a full banking license in China that would allow it to offer investment banking products locally, Werner Steinmüller, management board member responsible for the bank’s Asia operations, told Handelsblatt.

The move would follow its recent application for permission to place so-called Panda bonds denominated in yuan.

“We could then organize mergers and takeovers for our customers on the Chinese mainland, arrange IPOs and issue Panda bonds,” he said, referring to bonds denominated in Chinese yuan.

“In my view we should shed our fear of China to some extent.”

Werner Steinmüller, Head of Deutsche Bank Asia-Pacific

“That would be a giant step which I personally only expected to happen in two or three years. At present we can only carry out such deals outside the People’s Republic, for example in Hong Kong.”

China’s banking regulator this year scrapped license requirements for foreign and joint-venture lenders in the country for treasury bond underwriting, custody and advisory services.

Foreign banks still have to run investment banking in cooperation with Chinese joint-venture partners but they are now permitted to hold majority stakes in them.

Deutsche’s move underscores its commitment to grow in China despite its sale last year of its 19.99 percent stake in Chinese retail bank Hua Xia for €3.17 billion ($3.74 billion), a move intended to boost its capital base as it continues to struggle with weak earnings and a major restructuring at home.

Mr. Steinmüller took on the newly created role as chief executive officer of Asia Pacific last year and spends most of his time in Hong Kong and other locations in Asia. Handelsblatt interviewed him at the bank’s head office which he visits once a month.

He indirectly criticized the German government’s plan for tougher guidelines on regulating foreign acquisitions in the wake of controversy last year over the Chinese takeover of German robot maker Kuka.

“In my view we should shed our fear of China to some extent,” Mr. Steinmüller said. “German companies have invested €70 billion in the People’s Republic and are very successful in most cases. It’s only a tenth of that the other way round, just some €7 billion that Chinese companies have invested in Germany.”

“China wants to work much more closely with us and it wouldn’t make sense for us to shut ourselves off. Especially not at a time when the signs are pointing more strongly to protectionism in other regions of the world.”

Deutsche’s history in Asia and China stretches back 145 years. The bank opened its first branches in Shanghai and Yokohama back in 1872 and now employs some 19,000 staff in the region.

“This isn’t just about the historic silk road. The new modern silk road symbolizes the opening of the Chinese economy overall.”

Werner Steinmüller, Head of Deutsche Bank Asia-Pacific

Chief Executive John Cryan, battling to restore the bank to its old pre-financial crisis strength, has identified Asia and China in particular as important regions for future growth.

Deutsche Bank in May became one of the first foreign banks to finance China’s new multi-billion-dollar Silk Road infrastructure project, inking a deal with China Development Bank to provide $3 billion in funding for investment projects under the scheme.

“One definitely shouldn’t define this Chinese project too narrowly,” said Mr. Steinmüller. “This isn’t just about the historic silk road. The new modern silk road symbolizes the opening of the Chinese economy overall.

“It’s not only about infrastructure projects or the development of new export markets but also about liberalizing currency and capital markets.”

He noted that the Chinese government had created an investment fund called Silk Road Fund which will also invest in German or European companies that want to set up business in China.

“China is very interested in Germany, German knowhow and German companies. But we in turn can help for example with financing in yuan if German companies want to do business in the People’s Republic.

“We’re involved in many initiatives, from payments transactions to capital markets business to investment projects.”

Mr. Steinmüller praised the Chinese government’s efforts to curb what many analysts have warned is a dangerous credit bubble that could threaten the stability of the global financial system.

In my view the authorities currently have the right take on the situation and have the situation under control,” he said. “One example is the currency reserves that have stabilized at around $3 trillion.”

Asked if he thought the government would be able to keep on managing economic growth in a way that avoided social unrest, he said: “It’s always succeeded in doing so in the past. I expect the Chinese economy to grow by around 6.5 percent this year which is in line with the government’s aim. That should suffice as growth impetus.

“Besides, the People’s Republic is in the process of opening itself to the outside world — with success. The yuan has turned into a global currency in just a few years. Added to that is the controlled opening of the stock market by linking up Hong Kong and mainland China, and the most recent expansion to the bond market.”

China’s measures were working, he said, with some 10 percent of trade between Germany and China already processed in yuan. “The step-by-step liberalization is also showing results in the capital market. The big index provider MSCI recently decided to include Chinese mainland stocks in its important emerging markets index. We expect that to lead to heavy capital inflows.”


Michael Maisch in Frankfurt reported this story for Handelsblatt. David Crossland adapted this story to English for Handelsblatt Global. To contact the author:

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