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In an environment of increasing funding constraints, foreign banks operating in China are surprisingly confident about their prospects in the Chinese market, more so than ever.  In fact, they expect revenue to continue to grow over the next three years.  Their optimism stems from the continued opening up of the Chinese economy, and its transition towards a convertible currency.  These findings were revealed in the sixth PwC Foreign Banks in China survey.

The high level of confidence belies the continued struggle of the foreign banks in trying to gain a foothold in China. The 127 foreign players operating in the country commanded only 1.83% of the Chinese banking market in 2010, a slight increase from 1.7% the year before.  Notwithstanding this, the 42 foreign banks that participated in this year’s survey, made it very clear that their commitment to China remains resolute.

"The market share figure fails to reflect how the foreign banks are continuing to redefine the market segments in China.  They believe that China still offers exciting growth opportunities.  And they're not wrong.  China's economy may not be expanding as fast as before, but it's still growing at a faster rate than the banks' own home markets.  And with the Chinese government taking steps to internationalise the renminbi, more business opportunities will develop," says Mervyn Jacob, PwC Financial Services Leader for China and Hong Kong.

As in the past three surveys, debt capital markets continue to be viewed as the area with greatest future opportunity.  This is not surprising given that China’s bond market is now the second largest in Asia, and sixth biggest in the world.

And, despite concerns about the broader economy, the majority of foreign banks believe that corporate and consumer credit remains stable, as evidenced by the rise in luxury spending by Chinese consumers.

Nonetheless, as in past years, foreign banks continue to feel the increasing weight of new regulations.  Coupled with tightening liquidity and rise in interest rates and reserve requirement ratios, the road ahead is expected to be challenging.

"There're certainly obstacles and some speed bumps to tackle.  But in this current climate post-financial crisis, these challenges are not unexpected.  Foreign banks are in China for the long haul.  And the involvement of these international players is, and will, pay dividends for the development of China’s banking industry," says William Yung, PwC Financial Services Advisory Partner.

The foreign banks all agree on one thing.  That is, China will become an increasingly important global banking market.  As reported in another PwC report, Banking in 2050, China is set to overtake the US as the world's largest banking economy by 2023.  Which is why foreign lenders will continue to bank on China for growth.

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