Has globalisation bitten the dust? Signs of its demise are not hard to uncover, from the recent independence election in Catalonia, to Brexit, to the widespread unpopularity of multilateral institutions, to the surge in last month’s elections of the far-right AfD party in Germany and the imminent entry of the Freedom party in Austria.
Another symptom, if that’s the right word, of the dampening of globalisation has been the collapse of cross-border capital flows, which have plunged by around 65% over the past decade. This is according to a recently published survey by McKinsey, which noted that much of that decline has been the result of European banks retreating from cross-border lending and focusing instead on lending in their home markets.
Europe’s rejection of globalisation is a rejection of the concept of a borderless zone, where loans are extended as if the entire Eurozone were a single credit proposition.
That had been the goal immediately following the introduction of the euro at the end of the 1990s and held through the early years of the Global Financial Crisis.
But the crisis changed all that. Rather, lending in Europe now involves something anchored on a map which resembles the state of affairs prevailing in the inter-war years.
Italian banks lend to Italian companies, French banks to French companies, Slovenian banks to Slovenian companies, and so on. But that newly-discovered parochialism in Europe has been mirrored by the overseas expansion of Asian banks.
CHINESE AND JAPANESE banks are certainly less concerned by Brexit and EU politics. But it’s not just in that part of the world that Asian banks are extending their balance sheets. In Japan’s case, the country’s banks have been spreading their wings in order to uncover opportunities in terms of net interest margin which simply do not exist in Japan.
In China, the banks’ overseas expansion can be viewed as part of the country’s grand plan which envisages, philosophically at least, hegemony of the global financial system.
According to McKinsey, China last year ranked eighth in terms of total foreign investment assets and liabilities, up from 16th place in 2005. That equated to around 100% of China’s GDP, a considerably lower multiple of domestic product than applies in emerging economies such as Russia and Brazil, where the figure is more than 300%.
By that measure, China’s expansion into markets overseas has a considerable way to go, and the asset side – the lending books of the country’s banks – will be leading that charge. Together with the return of Japan’s banks to lending, this Asian ebullience suggests an axiomatic shift is underway in the global capital markets business.
IT MAY SOUND bizarre, but, from the loan market point of view, this balance sheet largesse on the part of Chinese and Japanese banks makes the job of the European bank loans officer a little easier.
The big boys can make the big calls in loan underwriting and the regional players can enter a syndicate at lower levels. Global banks get to earn some margin, a little bit of league table credit and sleep more easily at night with less of the heavy lifting left on their own books.
On the DCM side, the picture is less auspicious. Competing with Chinese banks with balance sheet to chuck around and a ready audience of institutional money back home is starting to look like a walk up the down escalator.
There have been wry smiles on syndicate desks at the big Western banks in recent years when looking at the bloated bank syndicates on deals led by Chinese bank subsidiaries in Asia.
But it seems to me the default position of condescension is going to be replaced as this decade comes to a close with a handing over of the baton to the boys with balance sheet at their disposal.
As project finance becomes ever more critical to the capital markets in Asia, via vast infrastructure projects - the Silk Road crafted by China being the most conspicuous - deploying balance sheet will become the only game in town. There is the old expression “if you’ve got it, flaunt it.” That’s a fitting mantra for Asia’s debt capital markets as the Western banking stalwarts confront their homegrown peers.
And if globalisation is still alive and kicking as a mindset and an aspiration, it’s to be found in Asia more than anywhere else.
