Chinese Interest in Islamic Banking

By Lahem al Nasser

Riyadh, Asharq Al-Awsat- We will not be able to say that Islamic banking has become a strong competitor to conventional banking unless it is able to surmount the Great Wall of China and settle upon the Chinese mainland and take advantage of what is considered to be one of the world's fastest growing economies. According to the World Bank, the Chinese economy is expected to experience a growth of 6.5 percent –during the [global] financial crisis – while during the same period of time the World Bank expects world growth not to exceed 1.5 percent. China is considered to be the US's largest creditor, and its investment in US bonds exceed one trillion dollars, while its own monetary reserve stands at nearly two trillion dollars, according to the CNN Arabic website. A Price Waterhouse report predicted that by 2050 the Chinese economy would surpass the [combined] economy of the G7 countries. The report based its prediction on Chinese purchasing power, which is founded upon the savings culture that is prevalent among the Chinese population, and their aversion to debt. China is also considered to be one of the more attractive countries for foreign investment which helps to finance this rapid growth. By the end of 2007 foreign investment in China reached approximately $74 billion.

According to Western estimates, China has a Muslim minority in the Xinjiang province with a population between 70 and 90 million. Yet until today, Islamic banking has confined itself to standing on the Chinese borders [and looking in]. Islamic Banking has a presence in Singapore – a country which borders China – as well as Hong Kong – the island under Chinese control – but has not crossed onto mainland China. To be honest I cannot find any justification to the long delay of Islamic Banking in making this crossing, especially since the Chinese government has been making overtures to this industry. This can be seen with regards to the People's Bank of China gaining membership to the Islamic Financial Services Board [IFSB]. The IFSB – whose premises are in the Malaysian capital Kuala Lumpur - is an international body concerned with promoting, strengthening, and developing standards of Islamic financial services.

China – from time to time- has sent positive messages to the Islamic banking industry; this includes monetary authorities in Hong Kong attempting to provide a sound environment for Islamic banking operations by amending their laws to the specifications of Islamic banking, especially with regards to Islamic Sukuk [bonds], as well as the establishment of Islamic indexes on the Hong Kong stock exchange.

Perhaps the newest and most important of these initiatives is what was proposed by the Financial Committee affiliated to the Chinese National Party [Kuomintang] on 3 March 2009 during a session of the People's Political Consultative Conference where they proposed the "development of Islamic banking operations [in China]." In order to justify the importance of adopting this proposal, the Financial Committee was quoted by Arabic.China.Org.Cn as saying "China, in its capacity as a large oil importer, should develop Islamic banking operations as this will…benefit China's economic development."

I would like to suggest that those within the Islamic Banking industry such as; the Islamic Development Bank, Kuwait Finance House, Dallah Albaraka Group, Al Raji Bank, Faisal Islamic Bank of Egypt, Dubai Islamic Bank and other financial institutions, take advantage of the initiatives proposed by the Chinese authorities in order to benefit Islamic Banking itself, and gain a foot-hold within the giant Chinese economy.

In order to achieve this goal, a joint working committee should be formed from the afore-mentioned organizations to implement the following:

- Communicate with the Chinese authorities and explain the nature of Islamic banking, its specification and its needs in order to help the Chinese authorities enact laws which are compatible with the Islamic Banking industry, and provide the appropriate atmosphere for this industry to flourish [in China].

- Study the needs of the Chinese market and formulate an appropriate [Islamic] Banking model for it.

Link:

http://gifc.blogspot.com/2009/04/chinese-interest-in-islamic-banking.html

- Study the possibility of establishing a collective Bank made up of the afore-mentioned banking entities in order to enter the Chinese market with strong capital, preferably by persuading the Chinese government to join in this collective bank. This will allow the bank to compete in the fiercely competitive [Chinese] market in which many large Chinese and foreign financial institutions operate.

The growth which the Islamic Banking industry is enjoying today cannot go on forever unless strategic plans are put into place to encourage this. This [continued growth will occur] by seizing the opportunities when they arise, and indeed creating opportunities when none arise of their own accord.

An ancient Arab poet once said "If the wind blows then seize this opportunity…for there isstillness in every storm" [i.e. seize the opportunity when it comes, for if you do not it will pass you by"