Barriers to entry

International banks are lamenting a dismal quarter for capital markets issuance, but Chinese houses are barely feeling the ripples from global turbulence.

Chinese institutions took nine out of the top 10 spots in the investment banking fee table in the first quarter of the year, with most enjoying modest increases from last year and Citic Group leading the league tables for both DCM and ECM.

Across Asia ex-Japan, loans slumped 39% year on year, ECM deals plunged 37%, and G3 bond volumes fell 20%, as issuers and investors wrestled with rising US rates and the conflict in Ukraine.

In China, though, it was business as usual. While the rest of the world contemplates central bank tightening, China looks more likely to ease, especially as the property sector struggles for funding and lockdowns loom.

Even with the population of Shanghai confined to their homes, or their offices, to contain Covid-19, CNOOC’s Rmb35bn (US$5.5bn) A-share IPO looks set to sail through.

Chinese issuers unwilling to venture into the volatile offshore bond market – and cut off from the US equity market right now – can raise debt or equity in huge size on the mainland.

And they don’t need foreign banks to do that.

Fees onshore aren’t great, but the huge volumes compensate. Renminbi bond issuance last quarter totalled more than seven times the amount issued in the G3 bond market across Asia ex-Japan.

It’s no surprise, then, that foreign banks are looking to increase their mainland presence. HSBC is the latest to do so, last week raising its stake in joint venture HSBC Qianhai Securities to 90% from 51%.

It might take years for international banks to be competitive in the onshore market, but it looks increasingly important to grow a presence there.

Banks that are over-reliant on Chinese deals in the international markets are hurting now, but the past three months have shown that there are diversification benefits to building a strong domestic franchise.