The opening of a full commercial branch in Shanghai is Bank of Nova Scotia’s latest step in a strategy to establish its presence gradually in China. The bank says it is also a golden opportunity to tap into a hot local economy.

“We view Shanghai and its surrounding market as a critical location to be in now and for the future,” says Robin Hibberd, Scotiabank’s senior vice president of Asia Pacific and the Middle East in Hong Kong. “One need only look at the city and its astounding development over the past 10 to 15 years to know there’s something very exciting going on.”

Scotiabank secured regulatory approval from the Chinese banking commission to upgrade its existing representative office in Shanghai into a branch. Where previously it had been limited to liaison activities between clients and prospective clients, the Shanghai office now will be able to take deposits, make loans and directly engage in trade finance and treasury business with corporate customers.

“Shanghai attracts one-twelfth of China’s foreign direct investment, and produces one-eighth of the country’s fiscal income,” says Hibberd. “The area around Shanghai also hosts more than 300 of the Fortune 500 companies. It is a market in which we want to be an active participant.”

The bank is now searching for larger premises for its Shanghai office, which, it expects, will open by June. Scotiabank already has branch offices in Guangzhou and Chongqing, plus a representative office in Beijing. It provides financial services to both local and international companies.

“Our largest customer group in China is the Chinese banks,” Hibberd says. “We also provide local and foreign currency loans and trade finance services to Chinese corporations and multinational clients from Asia, North America and Latin America.”

Scotiabank, which has developed a strong international business in emerging markets, has been in China since it opened a Beijing office 24 years ago. The bank’s strategy is to increase its capabilities in the region.

As part of the plan, Scotiabank bought a stake in Xi’an City Commercial Bank, which has 113 offices and is based in Xi’an, a city of more than seven million people.

“We look at it as an opportunity to gain direct experience in personal and commercial banking in the Chinese domestic market,” Hibberd says. “China’s banking market is rapidly evolving and our investment and participation in Xi’an City Commercial Bank give us a ringside seat to follow this development.”

Scotiabank will look to broaden its involvement in China further by obtaining more regulatory approvals from Chinese authorities.

“China has a system of graduated licences for foreign banks,” Hibberd says. “In future years, and as regulations permit, we will look to provide local currency services in Shanghai. In the meantime, we can provide renmimbi services across China from our Guangzhou branch.”

Hibberd says competition in the region comes from local and international banks, and not from other Canadian institutions. “In most Asian markets, we are the only Canadian bank,” he says. “While we are always interested in what other Canadian banks are doing in Asia, we don’t view them as direct competitors in those markets.”

Doing business in China comes with potential pitfalls, he says: “Tremendous progress has been made in China. But the societal infrastructure that we take for granted in some countries will have to continue to evolve for years to come.” IE