ICBC brings Chinese money to Turkey

By Dr. Altay Atlı

The world’s largest bank in terms of market value and total assets, Industrial and Commercial Bank of China (ICBC), completed the purchase of a majority stake at Turkey’s Tekstilbank to become the first Chinese bank to launch operations in the Turkish market. In fact, ICBC’s operations in Turkey moved apace as the inauguration ceremony held in Istanbul was followed by the signing of memoranda of understanding with six potential credit takers, including Turkey’s national power generation company, Turkish Airlines, and four major corporations active respectively in energy, steel, shipping and construction industries. ICBC is apparently aiming at rapid growth in this new market, and recently the Turkish media is awash with reports about ICBC’s intent to buy the branches of HSBC. The Chinese bank will reportedly buy all but ten out of a total of 287 HSBC branches nationwide. In other words, ICBC brings Chinese money to Turkey and the Turkish corporations are lining up to receive their share of funding.

ICBC’s takeover of Tekstilbank fits very well within China’s ambitious initiative of the New Silk Road, which aims to establish an economic belt linking China with Europe through Central Asia and the Middle East. The New Silk Road project will provide for facilitation of investment and trade along the route, and Turkey, being at the intersection of Europe and Asia, has a pivotal position in this respect. Chinese corporations are already involved in a number of key transportation and infrastructure projects in Turkey, and ICBC’s entry to the market will provide new funding. When Jiang Jianqing, chairman of ICBC, said during the ceremony in Istanbul that the bank will “pursue strategies of being Eurasian, in close cooperation with the surrounding regions,” he was clearly making reference to China’s conception of Turkey as a potential economic hub between Europe and Asia.

Turkey is welcoming both the New Silk Road project and the new financing opportunities from the world’s emerging economic power. At the same time, Turks and Chinese are learning how to do business with each other. However, there is a bigger question here: Can Turkey establish and maintain a balanced economic relationship with China?

From the Turkish perspective, the country’s economic relationship with China is in imbalance, and therefore unsustainable. On the trade side, Turkey has a large and rapidly growing trade deficit with China. In 2014, Turkey’s exports to China totaled $2.9 billion, whereas imports from amounted to a massive $24.9 billion. Considering the fact that Turkey is suffering from a chronic current account deficit, which corresponded to 5.7% of the country’s GDP by the end of 2014, imbalanced trade with China appears to be a major source of fragility for Turkey’s economy. After the takeover of Tekstilbank, ICBC’s official announcement boasted “the bilateral trade volume is expected to exceed $100 billion by 2020.” What is not mentioned is that if the current export-to-import ratio remains unchanged for Turkey, achieving the mentioned target will mean an additional burden of $80 billion annually on the country’s current account deficit.

There is a similar picture on the investment side. China’s investment in Turkey is increasing fast. According to official Chinese data, Chinese foreign direct investment stock in Turkey totals$ 640 million. On the other hand, however, Turkish investment in China is much lower, $91 million according to Turkish data, and currently in hibernation with few ongoing projects.

ICBC’s takeover of Tekstilbank will channel larger amounts of Chinese funds to investment projects in Turkey. However, what Turkey really needs is a more balanced economic exchange with China, and this necessitates more Turkish exports going to China and more Turkish companies engaging with the Chinese market. For this kind of balance to be achieved, Turkish banks are also needed to operate in China, just as ICBC does in Turkey. Two major Turkish banks, Garanti and İş Bankası, are active in China, since 1999 and 2006 respectively; however, what they have in China is only representative offices, and they are not offering banking services. If a balance is to be achieved, Turkish banks need to be fully operational in China, and this is precisely what Turkey’s Deputy Prime Minister Ali Babacan pointed at during the ICBC ceremony when he called on the Chinese authorities to “provide due convenience” for the Turkish banks to upgrade their presence in China.

ICBC’s entry to the Turkish market is major milestone in Turkish-Chinese relations. Chinese money will contribute to covering Turkey’s financing needs, and both countries are keen on what ICBC’s chairman called the “strategy of being Eurasian.” However, from the Turkish point of view, balance is the key issue. For the economic rapprochement with China to be placed on a sustainable footing, it is vital for Turkish corporations to be more active and achieve higher business volumes in the Chinese market.

Dr. Altay Atlı is a research fellow at the Asian Studies Center of Boğaziçi University in Istanbul, and a lecturer at the Asian Studies graduate program of the same university.

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