Mining deposits

Pondering a career in banking?

Zhang Yimou’s 1991 movie Raise the Red Lantern was filmed at the Qiao Family Compound in Shanxi. An imposing mansion in Pingyao, the compound was home to China’s answer to the Rothschild family. There were many more substantial homes in the neighbourhood – Pingyao was the Qing Dynasty’s equivalent of Wall Street.

By the time of the Qing, Shanxi was already a trading hub connecting inland China with Mongolia. But travelling with large amounts of cash – usually in the form of physical silver – was a dangerous undertaking. So Shanxi merchants began setting up exchange shops (known as piaohao or qianzhuang) nationwide, making Pingyao a banking capital.

By 1906, a third of the Qing government’s silver reserves were sitting in exchange shops owned by Shanxi financiers.

Shanxi today is better known for its coalmining barons than merchant bankers. Decades of mining have polluted much of the province. Newer industries are now required to lessen the reliance on coal which has led some to try to revive Shanxi’s former financial glories. The latest effort is the brainchild of a group of coal bosses keen to set up China’s first privately-run bank.

Last week, Jinben Investment Group, an obscure firm not much more than a year old, announced that it was bringing together Shanxi’s leading coalminers including state giants Shenhua and Jincheng, to set up a new bank.

An official website for the new lender, China Meitan Bank (meitan means coal in Chinese pinyin) is already up and running. The site called on other miners nationwide to join the new “financial carrier”.

“With their own bank, coalmining firms could have a more powerful and flexible financing channel,” Shanxi-based news portal ChinaCoal suggested, claiming too that the enormous coalmining resources available to shareholders means that Meitan “will become the safest bank in China”.

In a less bullish note at the end of the article, the reporter acknowledged that regulators are yet to approve the proposal.

A flurry of private firms including retailer Suning have been hoping to get banking licences as economic planners threaten to break the state lenders’ monopoly (see WiC206). But little detail is available on the proposed changes. Even so, any declaration of banking intent has been an effective way to send stock prices on a tear. Suning, probably the most prominent of the firms to claim an interest in a bank license, has seen its shares climb 50% this year.

Back in imperial China Shanxi’s exchange shops were built on a reputation of trust and reliability. Problematically, that’s not a trait many members of the public readily associate with the coal barons.

“Is the bank going to be used for washing coal-tainted money?” one netizen warned on a Sina Weibo forum discussing Meitan Bank.

Further information could be found in a statement from the Shanxi government. A group of coalmining majors had indeed signed a “preliminary strategic partnership agreement” with Jinben Investment, it confirmed. Meitan Bank could become a “super bank” with both “commodity resources and capital resources”, the statement also suggested.

Until the details on the new licences become clearer, it’s hard to establish a view on who is best positioned to get one.

But new entrants will have more chance of success if their local governments support their applications. Citing authoritative sources, the Shanghai Securities News reported last month that the central government will allow provincial officials more say in the latest wave of banking reforms. The newspaper also says that some provinces are already drawing up their own proposals for the introduction of private banks, although they will still need final approval from the China Banking Regulatory Commission.

In the latest development this week, the 21CN Business Herald reported that Hunan’s provincial government is getting ready too, and that it will support its two construction equipment giants Sany and Zoomlion in applying for banking licences of their own (see WiC214 for more on these firms).

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