Bank of China comes to PNG

The Bank of China opened its representative office in Port Moresby last Thursday, the first in Papua New Guinea and the Pacific, as it hopes to strengthen economic ties as explained in an interview with Bank of PNG acting governor Elizabeth Genia, Institute of National Affairs executive director Paul Barker, Prime Minister James Marape and Chinese ambassador Zeng Fanhua and business reporter Peter Esila.

Financial inclusion, a national objective
Genia: We need a range of providers to encourage competition, and broaden offerings, and stimulate innovation – all of which will benefit customers.
We’re not just talking about providing basic bank accounts in remote villages but we also need to encourage reputable institutions with the drive and determination to consider all the needs and requirements of the spectrum of potential customers, which includes individuals, small-to-medium enterprises, large organisations, corporations and multinationals.
Bank of Papua New Guinea (BPNG) does not require financial institutions to be all things to the people.
Specialising in a particular sector, or a type of product, is just as valid as having a full range of services and products.
The issue for PNG is to have a viable, vibrant and efficient financial sector, with a range of providers who give choice and reasonable value to customers.

National risk management strategy
Genia: In a real sense, actively encouraging new entrants can be considered to be a national risk management strategy.
In recent years, we have seen internationally active banks leave the PNG market.
This has resulted in concerns of potential increased risks of anti-money laundering, counter terrorism financing and cyber security issues for domestic financial institutions which have acquired the assets disposed off by the departing institutions.
BPNG has strongly supported domestic financial institutions to increase capital charges and to upgrade their core banking systems.
We have a low ratio of banks to people, even compared with our smaller South Pacific neighbours.
This lack of financial choice is causing an ongoing bottleneck that is restricting our nation’s economic development.
New entrants to our financial system need to be the right ones.
All participants in the PNG financial system must comply with regulations and prudential standards, overseen by BPNG.

Bank of China
Genia: The Bank of China (BoC) wants a representative office, rather than opening a fully-fledged bank, this does not translate into conducting banking and financial transactions.
However, BPNG sees it as the path to introducing a new commercial bank in PNG.
The original approval to BoC was given in 2019, for a period of three years.
At that time, BPNG recognised that having BoC representation in PNG would make a positive contribution toward our mutual trade, investments, cross-border banking services and other opportunities, such as correspondent banking relationships for domestic banks.
Unfortunately, the Coronavirus pandemic effectively delayed the opening then.
The approval runs for three years and we look forward to BoC choosing to apply for a banking licence at the end of that term.

Benefits of additional bank
Genia: It is about improving competition; increasing efficiency and lowering the cost of funds, particularly in the context of fees and charges.
When a new competitor enters, it challenges existing participants to review their current services and products, and sharpen their offerings.
BPNG is now charged with promoting employment and economic growth, especially of the non-mineral and non-petroleum sector.

Barker: Unlike Australia, which has nearly full employment and businesses have been focusing on investment in their home economy, China has a rather troubled economy, particularly since their extended and severe Covid-19 lockdown.
Major property and other businesses have been going bust and youth unemployment is at 20 per cent.
They are looking at further business and trading opportunities overseas and competitive resource supply lines.
Chinese businesses (in PNG) would find it convenient to have an additional banking source both for supporting investment and trade finance with strong Chinese market links, whether the Bank of China, Hongkong and Shanghai Banking Corporation Ltd or another bank.
BPNG and its financial analysis and supervision unit must extend oversight to the new bank.
Many smaller Chinese businesses, and even larger resource companies, currently operate on a cash basis and avoid formal banking, which brings with it greater oversight.
From PNG’s viewpoint, including revenue purposes, it is desirable to formalise transactions.
It would also reduce the risks of crime associated with large quantities of cash accumulating.
These businesses may be more willing to bank with BoC, but might still wish to avoid oversight from both PNG and Chinese authorities.
In any case, PNG authorities do need to strengthen financial oversight, while encouraging greater competition and access to financial services to PNG clients as well as overseas businesses.

PNG economy targets K200 billion
Marape: In 1975, our economy was under K5 billion, today our economy is K113 billion, within the next seven years, we want to go into a K200 billion economy to sustain our population that is now past 10 million people.
We want to be a middle-income earning nation.
Close to 60 to 70 per cent of our people are unbanked, there is an immediate need for one or two more banks, our government is working to reform our development bank into a commercial bank also, but that does not stop us for allowing independent banks to come in.
BoC brings into the market its own characteristics, and may lend to State-owned enterprises, private public partnership programmes, SMEs and governments contracts for development.
Tailor your products to the PNG market, in our endeavour to be a stronger economy with the right infrastructure.

Geopolitics aside
Marape: PNG is a place of friends to all and enemy to none, we have our values, we will not compromise the specific aspects of our own relationship with every persons, company, and government that wants to do business with us, we will give you the respect, we also want a reciprocal respect of that nature.
Chinese companies, government and people have been important partners on our progress in the last 48 years, we hope this bank will facilitate ease of transaction between the two peoples, two countries businesses and, of course, our two countries working in partnership going forward.

PNG-China bilateral trade reaches K18.6 billion
Zeng: Bilateral trade volume between China and PNG reached US$5.26 billion (about K18.6 billion) last year, an increase of over 30 per cent.
PNG’s trade surplus to China reached a record-breaking US$2.4 billion (about K8.5 billion).
This is because, in addition to importing a large quantity of PNG natural gas and other resources, an increasing number of PNG and Chinese enterprises are exporting coffee, cocoa, vanilla, palm oil, as well as lobster and other seafood products to China.
More Chinese firms are visiting PNG to explore opportunities in agriculture, forestry, fisheries, hydro and solar power generation.
The commissioning of the Edevu Hydro Plant recently fully demonstrates the confidence of Chinese investors in PNG.
In recent years, high-level exchanges between our two countries have been frequent.
The mutual political trust has continuously been strengthened.
China appreciates PNG’s consistent adherence to the One-China Principle and the correct decision to close its Taipei office earlier this year.
This has further strengthened solid political foundation for economic and trade cooperation.
China welcomes the decision of the PNG Government to establish a trade office in Shanghai and will provide necessary assistance.
Both China and PNG are also working to advance the negotiation process of a Free Trade Agreement.

Geopolitics
Zeng: We are aware that some countries, disregarding the desire of PNG and all Pacific Island countries for cooperation and development, are keen on playing geopolitical games in the region and creating conflicts and confrontations.
This is not conducive to regional peace, cooperation, development, and stability.
Nor is it conducive to the stable and rapid development of China-PNG economic and trade relations.
China and PNG are both firmly opposed to such attempts.

Business investment
Zeng: PNG with its abundant resources, fertile land, and hardworking people, and China, with its technology, capital, industrial capacity, and vast market, have complementary advantages that can lead to mutual benefit and win-win cooperation.
China stands ready to further promote high-quality cooperation with PNG in areas such as infrastructure, economic zones, and downstream processing industries under the Belt and Road Initiative.
We encourage more Chinese companies to invest and establish businesses in PNG. We welcome Marape’s visit to China later this year.
He will be warmly welcomed if he visits the Bank of China’s headquarters in Beijing, to deepen understanding of the bank.
And other Chinese companies will also welcome you to visit.