China could soon have some global banking giants of its own to match Wall Street

China’s banking system is going through a complete overhaul as the Chinese government pushes to consolidate the country’s banking sector into a smaller and more concentrated set of banking giants and brokerages that can stand toe-to-toe with the likes of Bank of America, Citibank, and JPMorgan, writes the Financial Times.

The move comes as part of a push to buttress the economy against shocks and enhance global competitiveness, while the country continues to grapple with the aftershocks of a severe property crisis and navigates an increasingly complex geopolitical landscape, particularly its ongoing rivalry with the US.

Less is more when it comes to Chinese President Xi Jinping’s approach to the banking sector, having previously called for efforts to help create “a few top-ranked investment banks and investment entities.” This push has seen nearly one out of every 20 rural banks close in just the last 12 months, according to cited data from the country's financial watchdog.

This is not merely a culling of weaker players, but part of a deliberate, top-down strategy to create a more resilient and powerful financial sector. In parallel, S&P Global Ratings data indicates a significant wave of mergers among Chinese securities firms, affecting entities managing over a fifth of the sector's assets since late 2023.

The move will not just affect China, but Chinese banks’ role in the world economy more broadly as the world’s second most populous country looks to increase the use of the CNY as a trade currency. Being able to effectively fund its Belt and Road initiative is also surely part of Beijing's calculations as China continues to position itself as an attractive global partner to nations historically more aligned with Western powers.

And this includes the MENA region, especially countries more suited to being classified as emerging markets. A bolder and more assertive Chinese financial sector could see Chinese capital playing a greater role in the region for both the public and private sectors, especially given the country’s interest in energy and logistics — often sidelined by Western lenders.

But despite progress, there’s still a long way to go — possibly a “decade-long process rather than a couple of years,” S&P Global Rating’s Ryan Tsang told the salmon-colored paper. The county’s diverse and mostly uncentralized banking sector is still home to more than 3.6k rural banks — accounting for just under 95% of Chinese lenders, despite managing only 13.3% of total assets, according to the FT.

MARKETS THIS MORNING-

Asian markets are mixed in early trading this morning. Japan’s Nikkei is down 0.2% and the Kospi is down 0.4%.Meanwhile, the Hang Seng is in the green, looking at gains of 0.3%, and the Shanghai Composite is flat.

THE CLOSING BELL-

The ADX fell 0.1% yesterday on turnover of AED 1.0 bn. The index is up 2.6% YTD.

In the green: E7 Group (+2.0%), Abu Dhabi National Energy Company (+1.9%), and Multiply (+1.4%).

In the red: Abu Dhabi National Takaful Co. (-8.5%), Americana Restaurants International (-4.1%) and Hayah Ins. Company (-2.2%).

Over on the DFM, the index rose 0.4% on turnover of AED 431.5 mn. Meanwhile, Nasdaq Dubai remained flat.