Pestel Analysis – Banking in China

Political Factors• China has a socialist political system• China has entered into the WTO and as part of the commitment to open up the banking industry, has issued the Rules for Implementing the Regulations Governing Foreign Financial Institutions in the People’s Republic of China , which allows Foreign financial institutions to provide foreign currency services to Chinese enterprises and individuals, provide local currency business to all Chinese clients and they can now conduct RMB denominated business in 9 cities, namely, Shanghai, Shenzhen, Tianjin, Dalian, Guangzhou, Zhuhai, Qingdao, Nanjing and Wuhan.

• Foreign Banks enjoy a 15% tax rate compare to 33% for local banks.

Economic Factors• The economy has changed from a centrally planned one to a more market-orientated economy that has a rapidly growing private sector and is a major player in the global economy. • China is the second largest economy in the world after the United States measured on a Purchasing Power Parity basis. • China’s per capita income had grown at an average annual rate of more than 8% over the last three decades.

• China has been the fastest growing major nation for the past quarter of a century with an average annual GDP growth rate above 10%. The growth rate for 2007 is 11.4% • The currency, RMB, is pegged to the USD and is currently undervalued. • As at December 2007, the benchmark deposit rate (one year) is 4.14%, one year lending rate is 7.47% • Inflation is approximately 7%

Social-Cultural Factors• China has a population of 1.3 billion, with 7.7% over the age of 65 • 42% of the population is in the urban area and 57% in rural. • 3.6% of the population over the age of 15 has postsecondary education and 51% with just primary education or below. • Very limited people with qualifications necessary for successful corporate management • There is an absence of “consumerism” in the workforce due to the legacy of State Owned Enterprises

• Expatriates often find it difficult to adopt culturally to life in China • Corporations seeking to hire from the Chinese labour market find it difficult to get employees to leave the State Owned Enterprises. • The skill sets of Government bureaucrats have to be transformed if they were to run private sector corporations

Technological Factors

• China’s leaders (Hu Jintao, Wen Jaibao, Jiang Zemin & Zhu Rongji) have been described as technocrats as they were all trained as engineers, therefore scientific and technological modernisation has been given a high priority. • Increased in the use of banking cards, China has issued 714 million banking cards between 1985 to 2006.

• Approximately 480,000 POS machines and 64,000 ATMs as at June 2004, low population vs POS/ATM ratio compared to developed markets. • The China Association of Banks promoted the inter-bank card network. • Fast take up of internet with roughly 20% p.a. growth since 2000. • 210,000,000 internet users as at June 07 , a 15.9% penetration and the second largest internet user after the US, which provides huge opportunities in the area of internet banking

Environmental Factors

• Not applicable to the banking industry ?• Rapid industrial development since the 1980s has increased pollution and degraded natural resources. • Environmental problems have posed a threat to the sustainable development of the country. • Seven out of the ten most polluted cities in the world are in China. • Government has plans to introduce more and more environment protection regulations.

Legal Factors• The banking system with 104 commercial banks with the top 4 being 100% state owned. The other 100 commercial banks have a shareholding ownership structure. • The central bank is the People’s Bank of China (PBOC) which formulates and implements monetary policy and it maintains the banking sector’s payment, clearing and settlement systems as well as manages official foreign exchange and gold reserves.

• The Central Bank Law give the PBOC full autonomy in applying the monetary instrument. • The China Banking Regulatory Commission (CBRC) is responsible for the regulation and supervision of banks and other deposit taking financial institutions. • Big four state owned commercial banks are the Bank of China, China Construction Bank, the Industrial and Commercial Bank of China and Agricultural Bank of China. Using PESTEL analysis to understand the macro-environment that impacts the Banking Industry in Australia

Political Factors• Australia is a constitutional democracy based on a federal division of powers. • It has a very stable political system• The financial system is deregulated and the Reserve Bank of Australia (RBA) issue banking licences to both domestic and foreign banks. They are subject to the same set of rules and regulations. • The government promotes competition in the market

Economic Factors• Australia has a Western style market economy dominated by its services sector • The Australian dollar is floated since 1983• GDP growth is approx 3.8% (Q2 2007) and GDP per capita is ranked 16th in the world • Australia has had persistently large current account deficit for over 50 years, with the main contributor being its narrow export base • The economy has been growing consistently and interest rate is currently at 7.25% with the inflation rate of 3% (CPI year to Dec 2007) • The labour market is tight with unemployment rate of 4.25%

Social-Cultural Factors• Australia has a population of 20.7 million with 13.1% over the age of 65 • Literacy for people over 15 years of age is 99%• Compulsory education for people until the age of 15 or 16 • 21% of the population over 15 years of age have bachelors degree or higher • Australia has a highly skilled work force• It is a multicultural society with people from a large range of ethnic backgrounds

Technological Factors

• Over 6.3 million active internet subscriber as at March 2007 • There are approx 21,000 ATMs and 450,000 EFTPOS in Australia with 74% of adults used an ATM and 66% of all adults used EFTPOS • More than 6 million people have registered for internet banking with 23% of all adults used the internet to pay bills or transfer funds • Currently only 10% of banking transactions are done through branches with the bulk of transactions now done electronically

Environmental Factors

• Not applicable to the banking industry ?

Legal Factors• The Reserve Bank of Australia (RBA) is the Australia’s central bank and its responsibilities include the operation of monetary policy, prudential regulation of banks, issue of currency and ensuring the stability of the Australian financial system. • The government has a four pillars policy to prevent mergers of the four major banks in Australia • All banks are regulated by Australian Prudential Regulatory Authority (APRA)