Date of Submission: 22nd November 2010

International Business Assignment I

Bank of China: Analysis of International Business Approach

Submitted by:
Akash Patil 10MBA0116

BANK OF CHINA

BRIEF INTRODUCTION

Bank of China is a nationalized bank of the People Republic of China. The Bank's core business is commercial banking, including corporate banking, personal banking and financial markets services. BOC International Holdings Limited, one of its wholly-owned subsidiaries, is the Bank's investment banking arm. Bank of China Group Insurance Co., Ltd. and its subsidiary and affiliated companies run the Bank's insurance business. Bank of China Investment Management Co., Ltd, its controlling subsidiary, operates the Bank's fund management business. BOCG Investment Limited, a wholly-owned subsidiary, undertakes the Bank's direct investment and investment management business. BOC Aviation Private Limited is in charge of the Bank's aircraft leasing business. In terms of tier one capital, the Bank was ranked 11th among the world's top 1,000 banks by The Banker magazine in 2009.

THE JOURNEY OF BANK OF CHINA In 1912 After the establishment of the Provisional Government of the Republic of China, Dr. Sun Yatsen, the Provisional President, sanctioned the change of the Da Qing Bank into the Bank of China, with functions as central bank. Afterwards, the Bank of China issued bank notes. In 1928 BOC was changed into a government chartered international exchange bank. In 1929 BOC London Agency was established, also the first overseas branch of the Chinese banks. From then on, BOC built up its global network with 34 overseas branches opening within the two decades. In 1949 On 5 June, BOC resumed normal business operations. The Bank became the specialized foreign exchange bank, which actively supported foreign trade and contributed greatly to the recovery and development of the national economy. In 1984 On 6 November, BOC successfully issued in Japan, 20 billion yen of Samurai bonds, which was the first overseas bond issue by modern China. BOC is now an established issuer. In 1993 China initiated a process of foreign exchange system reform and hence captured the world's interest. BOC played a critical role in the unification of exchange rates, foreign exchange purchases and sales, the

incorporation of foreign-funded enterprises into the foreign exchange sales system etc. In 1994, BOC embarked on a transformation from a specialized bank to a wider based state-owned commercial bank. In 1998 BOC International Holdings Ltd., the wholly-owned subsidiary of BOC specializing in investment banking, was located and incorporated in Hong Kong. This is the most internationalized investment bank established overseas by the Chinese banking industry, and correspondingly has the strongest professional team, the largest international distribution and retail network, and the most assets under management. In 2001 On 1 October, Bank of China (Hong Kong) Ltd. was incorporated as a result of the merging of 10 member banks of the former BOC Group, which not only marked a new level of BOC's operations in Hong Kong, but also a critical move forward for the restructuring of BOC.

Since 2010, the Bank continued to adopt the scientific outlook on development and pushed forward the implementation of its strategic development plan in a complex and volatile operating environment. By earnestly implementing the principles of streamlining structure, scaling up, managing risks and sharpening competitiveness, the Bank achieved sound operating results. This can be validated with the current financial statements as mentioned below. FINANCIAL POSITION Bank of China Limited "BOC" listed in the Hong Kong Stock Exchange announced its 2010 third quarter results on 27 October. According to International Financial Reporting Standards ("IFRS"), in the first three quarters of 2010, BOC recorded a profit after tax of RMB82.96 billion, an increase of 27.48% compared with the same period of 2009. The Bank achieved profit attributable to equity holders of RMB79.24 billion, an increase of 27.70% compared with the same period of 2009. As at 30 September 2010, The Bank's total assets amounted to RMB10.10 trillion, an increase of 15.43% compared with the prior year-end, exceeding RMB10 trillion for the first time.

STRATEGIES ADOPTED BY BANK OF CHINA Bank of China (BOC) in Peoples Republic of China (PRC) and Asian Development Bank (ADB) have agreed to explore a broad range of fresh opportunities for collaboration, including regional trade finance, clean energy and infrastructure development, microfinance and institutional capacity building. According to a report from Reuters, Bank of China plans to sign a memorandum of understanding with Bank of Taiwan, Mega International Commercial Bank Co., Chinatrust Commercial Bank and Taiwan Cooperative Bank. Under the memorandum of understanding, Bank of China and the four Taiwanese banks would cooperate on clearing currency, borrowing funds and training of personnel as a part of the MOU.

TIMELINE OF INTERNATIONAL BUSINESS EXPANSION

1917 BOC opened a branch in Hong Kong. 1929 BOC opened its first overseas branch in London. The branch managed the government's foreign debt, became a center for the bank's management of its foreign exchange, and acted as an intermediary for China's international trade. 1931 BOC opened a branch in Osaka. 1936 BOC opened a branch in Singapore to handle remittances to China of overseas Chinese. It also opened an agency in New York. 1937 At the outbreak of hostilities with Japan, Japanese forces blockaded China's major ports. BOC opened a number of branches overseas to facilitate the gathering of remittances and the flow of military supplies .BOC opened branches in Batavia, Penang, KualaLumpur, Haiphong, Hanoi, Rangoon, Bombay and Calcutta. 1941 and 1942 The Japanese conquest of South East Asia forced BOC to close all overseas its branches, agencies, sub-branches and sub-agencies, except London, New York, Calcutta, and Bombay. 1942 BOC set up six new overseas branches, including those at Sydney, (Australia), Liverpool, and Havana, and Karachi. 1946 BOC reopened its branches and agencies in Hong Kong, Singapore, Haiphong, Rangoon, Kuala Lumpur, Penang, and Jakarta. It moved the Hanoi agency to Saigon. At the suggestion of the Allied Forces Headquarters, it liquidated the branch in Osaka and opened a sub-branch in Tokyo. 1947 BOC opened agencies in Bangkok, Chittagong, and Tokyo. 1950 Some of the branches of Bank of China joined the bank headquartered in Beijing i.e., Hong Kong, Singapore, London, Penang, Kuala Lumpur, Jakarta, Calcutta, Bombay, Chittagong, Karachi, and Jakarta while others New York, Tokyo, Havana, Bangkok, and one other, possibly Panama opted to remain with the Bank of China headquartered in Taipei. In 1971, this bank took the name International Commercial Bank of China. 1963 The Burmese government nationalized all banks, foreign and domestic, including the Bank of China's Rangoon branch. 1971 The Bank of China transferred its two branches in Karachi and Chittagong to the National Bank of Pakistan. 1975 The People's Republic of Vietnam nationalized the Bank of China's branch in Saigon and the Khmer Rouge government nationalized its Phnom Phenbranch. 1981 BOC opened a branch in New York. 2001 Kwangtung Provincial Bank was closed and merged under Bank of China, Singapore Branch. 2002 Bank of China Futures Pvt. Ltd. wound up operations in Singapore.

2008 Bank of China buys 20 percent stake in La Compagnie Financiere Edmond de Rothschild (LCFR) for 236.3 million Euros (US$340 million) BOC solicited long term investors to take strategic stakes in the company. In October 2005, the Royal Bank of Scotland Group PLC announced a $3.1 billion investment which would give the British bank control of just under 10 percent stake in the Bank of China. Further investments were made by Swiss bank UBS AG, and by Temasek Holdings Pte. Ltd, who also promised to subscribe for an additional $500 million worth of shares during Bank of China's initial public offering. 2009 Opened branches in So Paulo and Maputo. Reopened branch in Penang in October 2009. 2009 People's Park Remittance Centre opened in Singapore, operating 7 days a week, offering remittance and cash exchange services.

OPPORTUNITIES AVAILABLE Since Bank of China is ranked among the leading international banks in the world, it has already made its presence felt globally with BOC the most international and diversified bank in China, providing a comprehensive range of financial services to customers across the Chinese mainland, Hongkong, Macau, and 29 overseas countries. With the commercial banking business acting as the central focus of the Group's development strategy, the Bank should improve its core competitiveness by expanding its business network, enlarging its customer base, promoting product innovation and enhancing brand recognition. Based on the underlying principle of unifying its strategy, brand, customers and channels, the Bank should make full use of the competitive advantages of its diversified services and capitalize on the synergies offered by its diversified business platform, providing its customers with a comprehensive and high quality financial services offering, including investment banking, investment funds, insurance, proprietary investment and leasing.

CONCLUDING REMARKS Great changes are on the horizon for Chinas banking industry. Structural changes are transforming the whole market, leading to more mature and wealthier international clients, as well as growing demands for automated transactions and real-time communication. External conditions are also maturing, including regulatory changes, financial reform, market-based interest rates and exchange rates, rapid growth of capital markets, disintermediation, wealth growth and new demands, reform of SOE shareholding structure and stock listings, and internationalization and technology import from strategic investors. Together, all these trends build a foundation upon which Chinas banking industry can fully develop its non-interest income business. Bank of China having a widespread business across the globe has a attractive base for expanding its business across the globe. Also it can consider entering developing markets like India, Brazil and South Africa, where economic developments are favouring opportunities for the banking sector to flourish.