/ChosunDB

Korean industries are shaking under the all-out offensive of Chinese corporations. From petrochemicals, steel, and shipbuilding—core sectors for decades in Korea—to the battery field, which is touted as a future key industry, Korean businesses are giving way to Chinese products. Is the financial industry, which plays a role in supporting domestic industries, safe from this relentless attack by China? In the early 2010s, Chinese corporations made a foray into 'shopping' for Korean financial companies with their immense capital. Most major Chinese banks have also entered the Korean market.

However, Chinese financial companies have not achieved good results in the Korean financial market. Instead, they are selling off the domestic financial firms they had acquired impulsively. Financial industry insiders are viewing the possibility of Chinese capital dominating the Korean financial market as low. However, they are analyzing that considerable amounts of Chinese capital have deeply infiltrated all segments of the financial industry, including banking, insurance, and securities.

◇ China's money targeted Woori Bank acquisition

Chinese banks began their foray into the domestic market in the early 1990s. After the establishment of diplomatic relations between Korea and China in 1992, the Bank of China, a Chinese commercial bank, opened an office in Seoul. Subsequently, the Industrial and Commercial Bank of China, one of China's largest commercial banks, also established an office in Seoul. Currently, six Chinese banks, including the Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank, the China Communications Bank, the Agricultural Bank of China, and Bank of Communications, operate in Korea. They primarily provide financial services to Chinese corporations and students living in Korea.

The logo of Anbang Insurance. /Courtesy of Anbang Insurance

The point at which Chinese capital aggressively targeted Korean financial institutions was in the early 2010s. During the global financial crisis in 2008, while the world economy was wobbling, China recorded an economic growth rate of 9.4% the following year. It was these rapid economic expansions that led Chinese financial entities to pursue the acquisition of Korean financial firms.

The Industrial and Commercial Bank of China showed steady interest in acquiring Gwangju Bank, which was a subsidiary of Woori Financial Group. It jumped into the bidding for Gwangju Bank in 2010, but failed as Woori Financial's privatization was delayed. Even after that, it continued to knock on the door for the acquisition of Gwangju Bank, but it was not successful.

China's Anbang Insurance, once considered a major player in global mergers and acquisitions (M&A), attempted to acquire management rights of Woori Bank. Anbang participated in a preliminary bidding process for the sale of a 30% stake in Woori Bank in 2014, but the sale was canceled due to a lack of competitors at that time. Anbang then bought a 4% stake in Woori Financial to enter the board of directors. In 2015, Anbang acquired TONGYANG Life Insurance and the following year, it also embraced Allianz Life (now ABL Life).

◇ Poor performance in Korean market but the offensive continues

The efforts of Chinese financial companies to penetrate the Korean market did not last long. Companies that aggressively pursued the acquisition of domestic financial firms often faced failure. Anbang Insurance, which was the most active in entering Korea, ultimately went bankrupt due to reckless business expansion. TONGYANG Life Insurance and ABL Life, which were acquired by Anbang, are currently being pursued for acquisition by Woori Financial. Recently, as Korean financial firms continue to be listed in the M&A market, there are no aggressive attempts for acquisition by Chinese corporations as seen in the past.

The China Industrial Bank Seoul branch located on Taepyeong-ro, Seoul. /ChosunDB

The performance of Chinese banks that have entered Korea is also on the decline. The Bank of China's Seoul branch reported a net profit of 13.2 billion won in the second quarter of last year, an 81% drop compared to the same period the previous year (70.2 billion won). During the same period, Bank of Communications' net profit also decreased from 19.7 billion won to 10.9 billion won.

Financial industry insiders believe the likelihood of the Korean financial industry being handed over to China is low. To establish a foothold in the Korean financial sector, acquiring a bank is essential, but banks cannot be put on sale in the M&A market. Furthermore, trust is paramount in finance, and Chinese corporations are generally not seen as trustworthy in Korea.

An executive from a commercial bank stated, "If a bank were to be put on sale in the current domestic financial industry system, it would not just be a problem for the financial sector but a serious crisis for the Korean economy," adding that "government measures would be taken before any bank comes onto the M&A market."

However, the attempts by Chinese capital to enter the Korean financial market have not ended. Tencent, a major Chinese information technology (IT) corporation, participated as a co-founder in the establishment of KakaoBank through a special purpose corporation (SPC) named "Sky Blue Luxury Investment," investing 4 billion won in 2016. Following this, it participated in paid-in capital increases, investing a total of 9.17 billion won to secure a 3.72% equity stake in KakaoBank. China's Ant Group's mobile payment service, Alipay, also became a shareholder during the launch of Kbank. Alipay collaborates with Naver Pay, Kakao Pay, Toss, and others in the business.

A financial industry insider noted, "If Korean corporations fall behind Chinese corporations in the global market, it will undoubtedly impact the domestic financial market," stating that "the trend is now leaning towards expanding business areas through strategic partnerships or joint ventures rather than direct acquisitions like before."