Doing business in China market is currently not easy. The country has been grappling with strict Covid-19 controlling measures which left the country isolated from the rest of world; a poor post-pandemic economic recovery; and rising geopolitical tensions with the west.

Having first established its presence in 1958, Tokyoheadquartered Mitsubishi UFJ Financial Group (MUFG) has since opened 14 branches and three sub-branches in China, serving corporate clients in the world’s second largest economy.

In a recent interview with Tony Lee, Head, Global Corporate Banking East Asia, Co-head, Investment Banking, Co-head, Hong Kong Branch, and Benjamin Lam, Head, Global Corporate and Investment Banking China, MUFG, to discuss the Japanese bank’s business strategy and outlook in China.

“With China’s expected recovery being very much aligned with the start of our new 3-year plan priorities, we hope to double our revenue,” Lam said.

Hong Kong is now the largest market among the four East Asian markets that Lee oversees, which also includes South Korea, Taiwan and mainland China, he said. The team is also expected their mainland China businesses to grow to a scale similar to that of Hong Kong’s within the next three to five years.

“Notwithstanding the economic slowdown and geopolitical tensions, China’s economy is still growing. We have a very strong ambition to do more in China,” he said. The bank is targeting top-end local Fis and multinationals, who constantly need treasury management, partners regardless of the environment.

Chinese corporates “going out”

A large number of Chinese firms are now interested in expanding their businesses overseas, either because of organic opportunities in Asia’s emerging markets and a slowed economy at home, or as a result of supply chain shift.

Sectors include electric vehicles (EV); technology, media and telecommunications (TMT); and healthcare, Lam said. Lee said that the MUFG team is looking to “do more” for their Chinese client base, facilitating their business growth journey outside of the Chinese market, through mergers and acquisitions (M&A), DCM and ECM activities.

Lee gave an example of a Chinese client that has a fast-growing subsidiary overseas that it wanted to fund for further expansion. The pitch from MUFG combined inputs from departments from banking, leveraged finance, and Morgan Stanley, in which the group holds a 22% stake, suggesting the client pursue a separate public listing of the subsidiary. Lee said that the offer was not made by other banking institutions.

MUFG’s revenue from corporate banking in China has been stable, thanks to a large group of Japanese corporates with a Chinese presence, Lee explained. The ‘global banking’ segment, he emphasized, refers to a greater push in serving local Chinese corporate clients, which include Chinese financial institutions,

Chinese corporates and global subsidiaries of multinationals (ex-Japan) in China.

“Our mainland China team is very much international oriented, and is ready to reconnect with the rest of our branches in the region, helping Chinese clients as they are increasingly interested in expanding to overseas markets,” he said.

Panda bond interest

On capital markets, MUFG China, together with some other foreign banks, was approved lead underwriting license for corporate panda bonds on China’s Interbank Bond Market (CIBM) in January.

Only two foreign banks held the license previously, being able to underwrite such onshore bonds that are issued by foreign entities and denominated in Renminbi. MUFG participated in the issuance of a three-year Rmb100 million ($13.8 million) green panda bond issued by NWS Holdings, the first Hong Kong corporate to issue such notes.

The move by the National Association of Financial Market Institutional Investors (NAFMII), the regulatory body of the CIBM, is a sign that China wanted to open up its onshore bond market to attract foreign issuers, grabbing the opportunity when Rmb’s borrowing costs remain lower than that of dollar’s.

Lam said that the team is seeing strong interest from potential issuers to look at panda bond issuances over the next 12 months, after the relaxation of the panda bond proceeds utilization, which can now be transferred offshore.

“We already built a good pipeline of clients that have shown interest in panda bond issuance opportunities in China,” he said.

An interest rate spread between Rmb and dollar contributed largely to the growing interest from foreign entities in issuing panda bonds. Egypt issued a Rmb3.5 billion panda bond in October 2023; Pakistan is also interested in a $300 million worth of issuance to tap the onshore Chinese market.

Furthermore, Lee and Lam also pointed out that due to a decreased overall supply in China’s bond market, as well as an investor base that almost only concentrated on banks, China’s onshore market was not as deep as that in developed markets such as the US. Not to say that panda bond issuances only account for a single-digit proportion of the total China bond market.

“For foreign corporates looking to tap this market, the first step is usually to test it out with a first issuance that is relatively modest, before moving on to largest issuances to establish presence in this space,” Lam said. But it is also important to expect a more diverse investor base with more nonbank investors such as pension funds, he added.

Corporate Treasurer

The original articles can be read HERE.