Citi shows China too big for Wall Street to snub

Better late than never. Citi is late to join the investment banking party in China, but its aim to launch its business onshore this year, as reported on Thursday by Reuters, underscores a simple and timely fact: despite all the growing problems of doing business in the People’s Republic, Wall Street cannot afford to ignore the world’s second-largest economy.

The move will add the final piece in the China puzzle for the $103 billion U.S. bank run by Jane Fraser. Citi decided to unwind its earlier joint venture with Orient Securities in 2018 after it couldn’t find a path to control. As a result it fell behind Morgan Stanley, Goldman Sachs, JPMorgan and others which have all taken bigger stakes in their brokerage businesses in recent years.

Expanding in China also reinforces Citi’s commitment to Asia. The bank recently finished paring back its consumer businesses in the region to just Hong Kong and Singapore, where it has scale. It was part of a global move to free up capital to invest more in institutional banking.

In the short term the new venture will be a struggle. Doing business in China is increasingly complicated thanks to Sino-U.S. geopolitical tensions and Beijing’s restrictions on exporting data. These concerns have prompted some Western banks to turn cautious of late, but serving their global and local clients requires maintaining a presence there. Despite the doom and gloom, China’s economy is still growing at 5%, and the country had the world’s busiest IPO market in 2023.

Citi is not alone in pushing on. Singapore’s DBS Group last week announced it is upping its stake in Shenzhen Rural Commercial Bank to nearly 17% from 13% at a price that pegs the unlisted Chinese lender’s worth at some $8 billion, or 5% above its book value. For some, though, it’s a delicate balance to strike. One Asian head of a Western bank recently told Breakingviews that he saw plenty of opportunity in China and wanted to expand his business there, but admitted that rising perceptions of risk made it too politically sensitive to push the case internally.

Once Citi’s new venture is up and running, its existing commercial banking relationships with corporates operating on the mainland will give it, on paper, an advantage over pure-play investment banks. Enticing them into giving it capital-markets deals is rarely as straightforward as it sounds though, regardless of China worries.