Chinese Banking System
In the case study under analysis, Chaudhuri (2014) pays much attention to the banking system of China and the development of different banking sectors in regards to the latest changes and requirements that may occur at the local or national level. Regarding the latest achievements, existing progress, and the possibility to develop international relations in a short period, a banking system of each country (and China is not an exception) has to stay compatible and valuable. Such goals can be achieved in case a banking system supplements equity capital, supports the idea of restructuring, and promotes the development and improvement of banking skills. The banking system of China demonstrates good results at different stages.
One of the main aspects of the case covers the controlling and administrative details of the banking system. It is stated that the whole banking sector, including the People’s Bank of China (PBC) and the China Banking and Regulatory Commission (CBRC), is under the control of the State Council (Chaudhuri 2014). Such a banking system remains a mono-block that involves many banks with their financial policies, functions, and relationships (Ye, Xu & Fang 2012).
The structure of the banking system plays an important role because it helps to stabilize the personal and professional needs of all employees and employers and clarify the tasks that have to be performed at different hierarchical levels. For example, PBC is defined as an organization with an ability to identify and control all financial policies in the country. The monetary policy and possible liquidity of the system are the two main responsibilities of PBC. To support and improve the results of PBC, CBRC performs such functions as regulation and supervision over other financial bodies in the system like SOCBs, several policy-lending banks, financial institutions, and credit cooperatives (Chaudhuri 2014).
The efficiency of the work of people in the Chinese banking sector cannot be neglected due to the results achieved by the country. First, the global financial crisis in 2007 was survived and used as an opportunity to promote banking restructuring, enhancing professional skills, and identifying core competencies in regards to which banking relations can be organized (Liang 2012). Second, positive changes in total assets are impressive.
Finally, the work of joint-stock commercial banks attracts the attention of governments and private parties that agree to finance many SMEs in the country. Therefore, the banking system makes many different organizations work in the same direction and promote the stability of the economic situation in the country, as well as support the possibility of the development of national and international relations.
During the analysis of the banking system in China, it is also necessary to underline its historical development and the decisions made regularly. For example, in 2001, one of the most successful decisions was made when China became a part of the WTO and provided itself with an opportunity to recapitalize SOCBs and manage non-performing loans. Capital reserves were increased in different regions of the country that allowed PRC to create more large state-owned banks (Chaudhuri 2014).
New mergers appeared and helped to cover the debts of weak and problematic banks. Besides, several urban credit cooperatives could turn into large city banks with some possibilities and controlling functions. On the one hand, such economic independence and constant development were the main benefits of the banking system. On the one hand, it was difficult to control the activities of all organizations. Therefore, the decision to pay attention to the cultural aspects and traditions was made.
The peculiar feature of the Chinese banking system is the recognition of Chinese culture, history, and traditions based on Confucian values. Chinese people believe in the power of family relations, respect, and recognition of personal values to maintain face. Almost the same attitudes and norms can be observed in the banking system and the development of international and interpersonal professional relations. For example, in Chinese families, hierarchical relations are respected for centuries. Banks and financial organizations are organized identically to support the idea of hierarchies (Ye, Xu & Fang 2012).
There is one central financial body that may control the activities of all organizations, including the work of the People’s Bank of China, China Development Bank, all nationwide banks, and different rural credit cooperatives. Some organizations are not satisfied with the necessity to perform limited roles and stay unable to make independent decisions stating that free relations and financial power have been already changed and improved. However, the power of the State Council is huge, and its rules and standards cannot be broken at the moment. Therefore, the banking system of China is under the control of one certain financial body.
In general, the analysis of the Chinese banking industry shows that the country was able to form a strong system many years ago. Though there is a need to support restructuring and reconsideration of financial functions and roles, China underlines the importance of cultural values and norms as a unique feature that has to be followed. Regarding the possibilities to develop new international relations and stabilize its heritage, the Chinese banking system has all chances to prosper and succeed.
Foreign Investments in China
During the last several decades, the banking industry has undergone considerable changes worldwide, including the importance of restructuring and reorientation (Chaudhuri 2014). The processes of globalization and internationalization promote new steps to be taken, new products and services to be introduced, and effective global trends that support developing countries. China is a developed country. Still, its banking system and foreign investment policies have to survive numerous changes and improvements using its norms and guidelines in comparison to developing countries where the rules of banking giants have to be followed. Regarding such positions in the banking industry and the abilities of the country, China turns out to be a good attractor of foreign investors providing several advantages.
Foreign direct investment (FDI) is a type of capital that can be invested in the country to bring its products and services to global and local markets. It helps to unite national economies, and many people and countries are interested in developing business relations with China. Several important factors have to be mentioned in the discussion of the role of China in the global economy. In addition to the fact that China remains to be one of the most populous nations with a competitive environment, it is characterized by the fastest-growing economy and the possibility to maintain its growth regularly in comparison to such countries like the United Kingdom where no economic growth can be observed by years (Wall 2013).
Its national reserves help the country to stay one of the well-known countries for export. Cars, technologies, gold, and jewelry are the products that are in demand globally, and China offers reasonable prices for people globally and experiences a constant flow of capital (Deresky 2014). The Chinese banking system and its products and services offered for export make the country strong and constant on the global market. Some foreign investors believe that as soon as they participate in the economic development of this country, it can be possible to promote a rebalancing of export-dependence (Deresky 2014).
However, if their attempts cannot bring positive for the results, it is always possible to stay a part of the fast economic rise being a significant member of the Chinese economic system. Another positive factor for foreign investors in China is that strategic partnership is used to determine the relations between the parties. Investors get a chance to augment their positions in certain regions of China and make their choices reasonable. Besides, in China, foreign investments are attractive due to its nationwide presence. The Chinese banking industry, as well as many other industries, has a unique management style. When a foreign investor decides to work with China, they should accept all its cultural values, history, and traditions. Therefore, not only financial benefits can be observed. Certain cultural saturation occurs.
However, there are also several challenging aspects any foreign player should be aware of. Regarding the fact of cultural saturation, it is necessary to understand that all foreign investors have to learn all unique aspects of the country and its history. It is not enough to learn several traditions and get acquainted with the works of Confucius which became the basis for the development of business and interpersonal relations in the country. Some people face problems learning the depths of Chinese culture. Still, it is not the only con that matters. It is also necessary to admit that some investors cannot afford constant stake acquiring in banks due to the existing costs. In China, foreign investors have to be ready to pay a lot to be a part of such fast and constant economic development.
Each progress has its price, and China establishes its own rules in terms of which it is hard to obtain the required portion of influence in the management policies. Such requirements and statements prove that China is open to new business relations and activities with the help of which its economy can be improved and developed. At the same time, Chinese banks do not find it necessary to provide foreign players with an opportunity to control some activities and a decision-making process. Some investors expect to spread their commercial business in Chinese commercial banks through various strategic investments and gain ownership control and asset quality. Sometimes, it turns out to be possible to achieve such goals and stabilize the positions in the banking system and foreign investment. Still, in the majority of cases, China does not provide foreign players to demonstrate their true intentions and possibilities by creating clear guidelines and standards.
In general, foreign investors can be attracted to China due to several positive factors, including participation in constant economic growth and obtaining certain financial guarantees. Foreign players get numerous benefits as soon as they decide to cooperate with China. However, it is also necessary to remember that China introduces certain rules and requirements that have to be met in order not to lose control of all financial operations.
It is recommended for foreign players to learn better the conditions under which strategic business relations can be developed with the country, benefits and shortages, and activities that can or cannot be allowed. China, in its turn, has to understand that the idea of foreign direct investments presupposes certain sacrifices or difficulties, and it is necessary to be ready for all of them using experience and the experiences of other developing and developed countries.
HRM Challenges and Solutions
Regarding the information that is given in the case under analysis and the situations described, it is possible to identify several major HRM challenges that foreign banks may face in China. First, foreign banks have to comprehend the nature of the Chinese management style. Besides, it is important to develop a specific commitment to Chinese society and the life millions of Chinese people prefer. Finally, Chinese society develops a strong attitude towards entrepreneurship. It is not easy to develop appropriate strategic alliances because stakeholder interests have to be taken into consideration and aspirations and needs have to be identified.
Foreign partners have to investigate different aspects of the Chinese economic sector and meet all cultural values. Such requirements create certain challenges that have to be solved. Chaudhuri (2014) offers crossvergence as a hybrid process that can substitute the convergence theory and become a solution for many foreign banks that aim at developing strategic alliances in the country.
To clarify if crossvergence can be a solution for the HRM challenges, it is necessary to discuss the peculiarities of convergence and crossvergence theories and compare the conditions which become available for the supporters of both theories. Convergence theory is based on the ideas of industrialism according to which a society of a certain country has to consider the values and behaviors which are supported by Western industrialized countries due to their impact and power over other business partners. Societies can become similar to each other and use technological progress, values, and economic achievements promoting industrialization through the whole world (Al Ariss & Sidani 2016).
Crossvergence theory supports the idea of dynamic interactions in terms of which all socio-cultural influences and ideologies may lead to the creation of one single system of business values. According to this theory, certain parent cultures cannot be ignored. However, they do not prevent the development of new ideologies. They introduce the grounds for the creation of a new system with strong rules and clear guidelines. Such promotion of combined socio-cultural forces introduces a strong influence under which banking systems of different countries, investment relations, and economic growth can be improved and work for a global good (Al Ariss & Sidani 2016). Interactions between countries are hard to develop, and crossvergence theory is an attempt that cannot be neglected in achieving business ideologies.
In comparison to a convergence where one approach is welcomed and supported to subdue other countries and players, crossvergence is the movement under which several principles, politics, and policies can be used to create a new effective form of management. It is a solution for strategic alliances that can be located in China. Though there is a threat that China can lose its cultural uniqueness and respect for tradition, crossvergence theory has some points with the help of which it is possible to develop new approaches and socio-cultural interdependence properly and safely (Deresky 2014). Crossvergence can be of different types, including conforming, deviating, and static. Each approach has its characteristics and helps to make a choice that is appropriate for nations, banks, and independent players in foreign investments.
For example, crossvergence can be used to confirm that national cultural diversities are not threats but have to be considered as a significant potential in terms of which knowledge can be shared, and cultures can be learned. Crossvergence is also a chance to identify cultural conceptions and use static indicators as the best explanation of cultural differences (Al Ariss & Sidani 2016). Finally, there is deviating crossvergence when there is a chance that cultural values can be increased or changed with time, and banks or other financial systems can hardly predict all improvements or challenges.
Taking into consideration the essence of crossvergence and its possible impact on the development of economic relations between countries, it is possible to define this instrument as an appropriate solution for the creation of strategic alliances and unique management styles. China has several options to rely on when foreign investments have to be used. However, its connection to culture and tradition may create some challenges for foreigners. Therefore, crossvergence is an effective tool with the help of which clear standards can be established, cultural knowledge can be promoted, and respect between nations can be supported. It is recommended to involve as many countries as possible and unite them to promote total asset quality, poverty decrease, and trustful relations.
Reference List
Al Ariss, A & Sidani, Y 2016, ‘Divergence, convergence, or crossvergence in international human resource management’, Human Resource Management Review, vol. 4, no. 26, pp. 283-284.
Chaudhuri, S 2014, ‘Case 9: foreign investment in Chinese banking sector: HR policies’, in H Deresky (ed), Management: managing across borders and cultures, Pearson, New York, NY, pp. PC4-1-PC4-8.
Deresky, H 2014, Management: managing across borders and cultures, 8th edn, Pearson, New York, NY.
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Ye, Q, Xu, Z & Fang, D 2012, ‘Market structure, performance, and efficiency of the Chinese banking sector’, Economic Change and Restructuring, vol. 45, no. 4, pp. 337-358.