China and the United States are two of the largest economies in the world that are competing to dominate the banking industry. According to the article, there are four banks in each of the two countries with assets that surpass the $1 trillion mark. The banking sectors in the two countries are competing for global dominance. However, while Chinese banks are growing in size, American banks are stagnant about growth because they are afraid of further expansion (Bove par.1). This means that Chinese banks could dominate the world banking industry if they continue to grow and the American banks maintain the same size. Statistics reveal that the four largest banks in the U.S. have assets worth $8.1 trillion while China’s four largest banks have assets valued at $11.8 trillion (Bove par.2).
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The shift in financial power is further demonstrated by the profits of the banks. The American banks report annual profits of $86.4 billion while the Chinese reports annual profits of $141.2 billion (Bove par.3). The growth achieved by Chinese banks is astounding. For instance, China’s smallest bank (Bank of China) among the four largest has more assets than the biggest bank in the U.S (JP Morgan Chase). China is achieving this growth by implementing policies that encourage the expansion of its banks. Partnerships between China and Russia have raised the status of the Yuan into the second global reserve currency (Bove par.5).
Also, it has partnered with Brazil, South Africa, India, and Russia to create a new world bank referred to as the Asian Infrastructure Investment Bank (Bove par.5). The United States has not yet joined the new bank. Chinese banks are facilitating the penetration of china into new markets including Africa and Latin America. In contrast, the U.S. is implementing policies that are forcing big banks to shrink their assets.
Significance in a global setting
The banking sector is an important pillar of the global economy. The policies implemented by both China and the U.S will have certain effects. The United States will give way to China as the leader in global banking and provide a great competitive advantage. China will continue to implement policies that allow it to dominate the world banking industry. China’s domination of the banking sector will neutralize competitive threats from other great economies, facilitate the exploitation of market opportunities, and encourage low-cost trading with other countries. The dominance will be a great resource that will provide a competitive advantage in international markets and the global economy.
The U.S will lose its dominance and competitive advantage in the global economy if it does not review its policies to encourage its banks to continue expanding and growing its asset base. China will use its dominant banking sector to face its other sectors thus fostering their growth. Besides, it will use its financial power and competitive advantage to penetrate emerging markets such as India and Africa.
Bove, Richard. China’s Big banks Eclipse U.S. Rivals. 2015. Web.