China’s state-controlled lenders were all technically insolvent by the late 1990s, with a sector-wide non-performing loan ratio of as much as 50 per cent, according to some estimates.
Following a successful government bail-out programme, Chinese banks are now the biggest (by market capitalisation) and most profitable (in absolute terms) in the world and boast some of the strongest balance sheets of any financial groups.
But for ordinary folk in China, the most basic services available at banks in other countries are unheard of and going to the bank is still one of the most stressful experiences of their daily lives.
Customers must show their passport or government identity card for virtually every transaction.
Queues to see a teller are often more than an hour long. Bank staff are invariably incompetent and rude and internet banking is poorly designed and only available on a handful of operating systems.
On Tuesday I went to my local branch of China Merchants Bank, a midsized lender renowned for having the best service and most advanced technology of any Chinese bank, to tell them I had lost my debit card and to ask for a new one.
As I started to fill out the form (all transactions still require a long paper trail, despite years of automation) I was told that the only branch that could issue me with a new debit card was the one where I had originally opened my account.
So I fought my way through Beijing traffic to another branch where I was told to fill out a form that would allow me to pick up my new card (they don’t mail them) after seven days.
Despite the fact I had given her my passport, the teller interrogated me with half a dozen probing questions that were apparently intended to confirm my identity before she asked me to input my secret pin number on a keypad.
But when I asked her if I could take out some money from my account she stared at me with a blank look: “You can’t take out money if you don’t have a card,” came her response.
She was completely unmoved by the prospect of my family and I not being able to eat for a week and she dismissed my plaintive appeals as no concern of hers.
As I was contemplating my penniless predicament she suddenly announced that the funds in my account had been frozen by the bank so there was no way I could access my money even if I did have my card.
On further investigation she ascertained that somebody had found my debit card four days earlier and handed it in to another branch of the bank, which had then frozen my account.
She declined to explain why nobody had contacted me or why the first branch I’d gone to had not told me my card had been found. But she did say I could pick up my debit card in person at the third branch and could use it when my account was eventually unfrozen.
Even for a post-Communist economy with no real service culture the banking experience in China stands out for its bureaucratic, illogical obstructionism.
One of the most galling aspects of all this is how Chinese banks assiduously apply “risk controls” (as the banks call their many and varied obstreperous regulations) when dealing with small potatoes like me and then largely ignore the glaring risks involved in lending huge amounts to bankrupt local governments or highly indebted state-backed companies.
Small and medium-sized enterprises that make up the most dynamic sector of the economy mostly find it impossible to deal with state-controlled banks and often turn to unregulated moneylenders and underground banks to get credit.
International banks that emphasise good service are present in China but are still quite restricted in their operations and account for a tiny fraction of the overall market. And because of government capital controls the average Chinese citizen does not have the option (legally at least) of taking their custom offshore and must make do with deeply negative real interest rates and terrible service.
Meanwhile, Chinese banks have been gradually expanding abroad in recent years, making some acquisitions and setting up branches in major cities around the world. But apart from Chinese companies and expatriates that already bank with them back home it is hard to imagine anybody voluntarily subjecting themselves to the distress and ignominy of the Chinese banking experience.
Good story that happens everyday in China. Service quality is a key asset of foreign banks but that is too much to ask for PRC employees.