25 Finance St.
CCB Essence: Teamwork, professionalism, innovation, and contribution. CCB Style: Faith, assiduity, truth, and motivation.
China Construction Bank Corp. (CCB) is one of China's big four banks, and is also one of the 40 largest banks worldwide, with total assets of CNY 4.2 trillion ($522 billion) in 2005. The bank is also the first of China's large, state-owned banks to be publicly listed; CCB's initial public offering (IPO) on the Hong Kong stock exchange was China's largest ever, and is also the world's largest bank IPO since 1980. Once responsible for the distribution of government infrastructure and construction spending, CCB began transforming itself into a commercial bank during the 1980s. The bank offers a full range of banking services to the private and corporate sectors, backed by a network of more than 14,000 branches and 275,000 employees. CCB also operates branch offices in Hong Kong, Singapore, Frankfurt, Johannesburg, and Seoul, and offices in New York and London. Subsidiaries include Jian Sing Bank Limited, in Hong Kong, and CCB Principal Asset Management Co., Ltd., a joint venture formed in September 2005. The bank also offers e-banking facilities, and boasts more than 26 million e-banking customers.
Backing State Infrastructure Spending
China Construction Bank was established as the People's Construction Bank of China in 1954. The body's primary role was to act as a central clearinghouse for government funding of the country's major infrastructure and industrial construction projects carried out under successive five-year plans. CCB's mandate literally included every phase of construction spending, encompassing every industry. As such, the CCB quickly developed a national organization.
Based in Beijing, the bank built a network of branch offices throughout the country. Many of these offices focused on specific areas of construction. By the end of the country's first five-year plan, CCB had opened 88 branches in 16 provinces, major cities, and autonomous regions specifically for the funding of major construction projects. Other specialized branches were placed as part of the country's major industrial complexes. These included ten branches located in the country's steel factories, another eight serving its heavy machinery production complexes, and branches dedicated to the mining and agricultural industry, as well as branches specifically governing the country's railroad system. Later on, CCB continued to add new specialized branches, including offices governing such major industrial and infrastructure sites as Three Gorges and the Tsinghai-Tibet railroad.
CCB's banking operations remained limited to this role through the late 1970s. The drive toward economic reform and the first steps toward liberalization of the country's financial, commercial, and industrial sectors, led to a change in CCB's status. In 1979, CCB became one of the country's state-owned "special" banks, charged with helping the government implement the new reform policies.
The bank was placed under the direct control of the State Council. CCB's role then shifted from serving as a clearinghouse for governments to that of a more traditional banking role; instead of serving as a conduit for funding, the bank now became a lender. CCB completed its first loan, of CNY 34 million, to the Liaoyang Fiber Plant in 1979. By the beginning of the 1990s, CCB's total loan portfolio had topped CNY 300 billion. During this period, CCB's loan portfolio, while heavily based on construction loans, also expanded to include working capital loans and fixed assets investments. The bank also began lending to the newly emerging class of commercially operating enterprises, issuing its first working capital loans to this sector in 1987. In order to fund its newly expanded range of operations, CCB also began taking deposits; by the early 1990s, the bank boasted more than CNY 40 billion in self-financing deposits.
Transition to Commercial Bank
CCB's transition into commercial banking took another step forward during the decade as it expanded into consumer markets as well. The company entered the real estate market, and became a major player in the commercialization of the country's housing park, previously controlled by the various regional, provincial, and municipal government bodies. By the early 1990s, CCB had become one of the leading financial players in the country's real estate market.
The development of the special economic zones along China's coast and the opening of these zones to foreign investment and operations, led CCB to develop its own currency exchange and international finance operations, started in 1986. The bank's first success in this area came that same year when the bank's Shanghai branch helped arrange an international financing package for Shanghai Petro-Chemical. CCB began rolling out its international finance services elsewhere in its branch network, and by 1988 offered coverage through its branches in all of the major provincial markets and special economic development zones. Also during this period, CCB began issuing bonds, a service launched in 1986 with the backing of the Shandong Yantai Longkou Power stock offering.
Into the early 1990s, CCB built up a range of consumer services as well, and underwent a vast expansion of its branch network. By the beginning of the 1990s, CCB's network numbered more than 21,000 branches nationwide, and its employee base had grown to nearly 400,000. The bank began developing its first credit card in 1989 with MasterCard. That card was launched in April 1990, in Guangzhou province. The company then added a VISA card, and by 1993 had extended its credit-card issuing operations to nearly 270 branches. The company also began installing its own ATM network, and by the end of 1993 boasted some 7,000 machines.
The China government in the meantime had continued to carry out its economic reform policy. At the end of 1993, CCB prepared to enter into the third phase of its development, that of becoming a state-owned commercial bank. An important step in this process came in early 1994, when the CCB's policy making functions were separated from the bank and placed into a new entity, the China Development Bank. By August 1994, CCB had also shed its infrastructure construction loan operations. The bank's mandate turned fully toward commercial banking, with a focus on the mid- and long-term credit markets. To underscore its new independence from its former government function, the bank changed its name in 1996, formally adopting the China Construction Bank name. By then, CCB had grown into one of the country's top four banks, alongside its state-owned counterparts, Bank of China, Industrial & Commercial Bank of China, and Agricultural Bank of China.
Leading the Chinese Banking IPO Market
CCB adopted a new business strategy in the mid-1990s, calling on a shift toward performance-oriented operations. As part of that effort, the bank began putting into place a clear exit strategy for its lending operations. In 1995, the company also launched an effort to establish its own in-house credit-rating system, in order to develop more objective standards for its lending business. Nonetheless, CCB, like its other state-owned banking counterparts, remained saddled with huge levels of non-performing loans. In an effort to clean up the books of its four largest banks, the Chinese government launched a series of aid efforts, including establishing a number of new companies to absorb parts of the banks' non-performing loan portfolios. In 1999, for example, CCB transferred its own non-performing loans to a new state-owned vehicle, China Cinda Asset Management Corporation. Altogether, the Chinese government absorbed some $400 billion non-performing loans. The government also pumped in funds to enable the banks to balance their books. By the mid-2000s, the government had pumped nearly $260 billion into CCB and the other members of China's Big Four banking group.
The Chinese government continued to push ahead its economic reform policies in the run-up to the country's admission into the World Trade Organization in the mid-2000s. By the beginning of that decade, the government had also indicated its intention to transfer ownership stakes in its largest banks to the private sector. Yet the Chinese banking sector remained riddled with corruption (arrests of the sector's top executives for corruption and bribery charges were commonplace) while the banking industry was hampered by a lack of trained personnel. Indeed, into the 1990s, appointments to many top banking positions were still made according to political ties, rather than experience in banking.
In 2001, CCB adopted a new corporate culture position as it began its effort to transform itself into a modern, customer-focused operation. This effort came ahead of the announcement in 2003 that the Chinese government was preparing the initial public offerings (IPO) for CCB and for the Bank of China. Toward that end, in September 2004, the company was restructured as a shareholding bank, named China Construction Bank Corporation. The bank's major shareholders included The Central Huijin Investment Company, China Jianyin Investment Limited, State Grid, Shanghai Bao Steel (Group) Co., Ltd., and China Yangtze Power Co., Ltd., while the Chinese government retained its controlling stake in the company.
In the buildup toward its public offering, CCB turned to Citibank as its foreign partner and underwriter. Yet Citibank's involvement elsewhere in the Chinese banking sector led to a conflict of interest between the two banks, and Citibank was forced to withdraw. Instead, CCB found a new partner in Bank of America (BoA), which had only limited interests in China and agreed to spend some $3 billion for 8.7 percent of CCB's stock, with an option to increase its stake to nearly 20 percent. BoA also agreed to contribute some 50 staff members to provide technical advice and assistance to CCB. The backing of BoA was credited as a major factor in bringing CCB to the stock market.
As it prepared for its IPO, CCB also launched a massive streamlining effort; by 2005, the bank had trimmed its branch network by nearly one-third. The bank's 14,000 branches focused especially on the country's more economically vital areas, particularly its coastal regions. At the same time, CCB slashed its payroll, eliminating some 100,000 jobs.
CCB's IPO was completed in October 2005, with a listing on the Hong Kong Stock Exchange. The listing of just 10 percent of its shares had raised more than $8 billion, marking China's largest ever IPO, and also the largest IPO in the global banking sector since 1980. CCB continued its efforts to transform itself into a modern and efficient banking group. In September 2005, the bank set up a new joint-venture assets management wing, CCB Principal Asset Management Company, in partnership with the Principal Financial Group and China Huadian Group. The bank also began stepping up its operations beyond mainland China. In late 2005, for example, CCB's Hong Kong branches launched personal banking services for the first time. CCB braced itself for the next phase in the China banking market's reform: the market's full liberalization was slated for the end of 2006. This meant that foreign banks were to be allowed to open their own branch networks in China and compete for banking customers for the first time. CCB appeared prepared to meet the challenges of what was expected to become one of the world's most competitive banking markets in the new century.
CCB Principal Asset Management Co., Ltd.; Jian Sing Bank Limited (Hong Kong).
Industrial and Commercial Bank of China; Agricultural Bank of China; Kreditanstalt fur Wiederaufbau Bank of China Ltd.; The Hongkong and Shanghai Banking Corporation Ltd.; China Development Bank; Bank of Communications Company Ltd.