PEST and SWOT Analysis of Bank of China

Wenxiao Zhang

1. Introduction

In 1912， Bank of China （BOC） was established in Shanghai as the central bank and this is the oldest bank in China. However， BOC had authorized by the government to become international exchange bank between 1928 and 1953， then it was authorized to be a specialized foreign exchange bank in 1953. Furthermore， the leader of BOC was the State Council instead of Peoples Bank of China after 1979. In the meantime， BOC was given the functions of the State Administration of Foreign Exchange by the State Council. During the reform and opening up， BOC has ranked among the worlds largest banks， due to an obvious development in its business activities. Finally， BOC has transformed from a specialized foreign exchange and trade bank to a state-owned commercial bank since 1994.

The aim of this report is assessing BOC by PEST and SWOT analysis. First of all， the market of BOC will be assessed by PSTS analysis in terms of Political， Economic， Social and Technological factors. Then， the SWOT analysis will measure BOC by a grid which clearly states four essential parts， including Strengths， Weaknesses， Opportunities and Threats. Last but not least， a brief summary will contain the essential points of PEST and SWOT analysis.

2. PEST Analysis

2.1. Political

In 2001， China entered into the World Trade Organization （WTO）， thereby foreign-funded financial institutions were able to operate RMB business in China. When China became a member of the WTO， Chinese Banking Regulatory Commission changed relevant laws and regulations to accord with WTO rules （Yu， 2002）. The Foreign Bank Administrative Regulation of China （2006） states that China will expand RMB business and foreign exchange business in foreign-funded banks in order to meet different requirement from various consumers. Moreover， The State Council of China announced amendments to the Foreign Bank Administrative Regulation of China has been implemented in beginning of 2015. However， domestic banks will face an great range of threats， due to the opening up of RMB business to foreign banks could causes more foreign investment and expanding their businesses （Sun， 2015）.

2.2. Economic

In recent years， a significant growth in economic integration has been caused by the liberalization of international trade and capital markets. Although economic facilitates the internationalization of banking activities， it also cause that financial shocks can be spread rapidly between different countries （BIS， 2010）.

On the other hand， economic integration and entering into the WTO as the main reasons for Chinas rapid economic development. According to Figure 1， it clearly states Chinas foreign exchange reserve has kept a constant growth tendency since 2000. While adequate foreign exchange reserve benefits to avoiding RMB depreciation and stabilizing economic system， holding surplus reserve will create numerous opportunity cost as well as the risk premium for developing country such as China （Liu， 2007）.

Moreover， after the reform and opening up， the Chinese economy has developed constantly and the development of economy mainly reflects in Gross Domestic Product （GDP）. Figure 2 clearly shows the GDP in China has kept an upward trend since 2000. Nevertheless， the Growth Rate of GDP has started to decrease with fluctuation between 2007 and 2014， in other words， economic growth of China has begun to slow.

2.3. Social

According to Figure 3， both of the income and expenditure of Chinese households have risen continually since 2000， but the economic development of the urban area is faster than that of rural area. In addition， the income gap between rural and urban households has gradually been bigger during the 14 years. Unfortunately， this problem has not been solved by the government up to now.

Furthermore， an increasing number of individuals want to keep a balance between family and work， thus they prefer to work near the home rather than abroad or some places far from home. However， a majority of companies introduce technology and experience by assigning their employees study or work abroad. Therefore， single households who can pay more attention to work are appropriate for this situation （UK essay， 2013）.

2.4. Technological

During the technological development and telephone popularization， an increasing number of consumers have preferred to make a transaction at home rather than go to branches. Therefore， numerous banks launch E-bank and mobile application as very convenient ways that allow consumers to make transactions or checking balance by themselves.

Moreover， banks want to attract more consumers to open an account and make the transactions in their branches. Therefore， Customer Relationship Management （CRM） system as an effective way which can help banks to attract new consumers as well as some consumers they lost.

3. SWOT Analysis

3.1. Strengths

BOC is the highest level of internationalization in Chinas domestic commercial banking and it is the first specialized foreign exchange bank in China. Furthermore， BOC was the International Business Department of Peoples Bank of China， therefore BOC has an extensive market in the world by its outstanding reputation. In 2008， Wealth Management Weekly Magazine stated that BOC ranks as the top of the respected bank in China （Pan and Qiu， 2010）. In the same year， BOC played a significant role as the sole official financial partner in the Beijing Olympic Games. In addition， in order to protect consumers security， BOCs mobile bank service was launched in 2010 with the highly secure E-token technology in China. Furthermore， some BOC branches have adopted CRM system and generally they have gained back a part of consumers they lost. Indeed， a great number of consumers tends to choose a bank with the excellent reputation， so BOC has an abundant consumer base.

Moreover， the branch network of BOC covers a wide range of regions. By the end of 2009， branches of BOC was distributed in 29 countries and regions as well as the cooperative relationship with more than 1400 overseas banks. In the global market， BOC has strong external financing capacity and lower financing cost due to China is the largest foreign exchange reserve country in the world. In addition， BOC is the first Chinese bank which is able to offer international clearing service which depends on powerful global RMB clearing ability. As a result， BOC establishes RMB clearing centers in several major currency countries （e.g. America， Hong Kong， Germany， and Japan） that provide a convenient channel to BOCs international business.

On the other hand， international business is generally tied with severe risks due to the strange counterparty or long distance for a transaction. BOC also is the first institution which provides forward settlement and sale of foreign exchange operation （Yan， 2012） so it has a great deal of experience in avoiding exchange rate risk. As a consequence， developing international business constantly and attracting consumers for BOC mainly rely on effective risk avoiding mechanism.

In addition， proficient staff also is a key factor of avoiding risk as well as keeping a competitive position. Although the education level of BOCs staffs is among the best in Chinese financial institutions， these staffs still have to accept strict training which is offered by BOC （Pan and Qiu， 2010）.

3.2. Weakness

As mentioned above， the branch network of BOC has covered a wide scale around the world. However， there is an imbalance in BOCs market strategy. Due to BOC can obtain substantive benefits from the Chinese market with the outstanding reputation， it pays more attention to domestic market rather than the overseas market. Furthermore， in comparison with other three state-owned banks （Industrial and Commercial Bank of China， Agricultural Bank of China and China Construction Bank）， the sum of its domestic branches of BOC is the least （Pan and Qiu， 2010）.

On the other hand， staff wages can be generally connected by their selling results （e.g. Wealth management products， cards， loan， etc.）， in other words， selling more products can cause the staff gets more wages. Therefore， numerous internal staffs achieve or even surpass sales target by encouraging relatives and friends to apply for a BOC card without necessity. Indeed， the average consumption amount of each BOC credit card is just less than 2400 RMB in 2009. In addition， the cost of each card is 100 RMB so an excess of the unactivated card will cause huge losses of time and capital （Pan and Qiu， 2010）.

Bank of China does not focus on technological development. For instance， China Construction Bank （CCB） is the first domestic bank which sets up mobile bank service for consumers. However， BOC launched their WAP service in 2010 and it is later than CCB， therefore the technological level of BOC is not the top one in China. Indeed， the level of technology and application in overseas branches can not achieve the international level， thereby a great number of overseas branches can not offer financial services and external operations with high technological support.

3.3. Opportunities

In recent years， BOC has had sufficient capital， thereby the core operation and market positioning of BOC should be transferred from domestic into overseas. Furthermore， BOC has set branches in some international finance center （e.g. London， New York， etc.）， thus it will gain a range of advanced experience and understand new international principles timely. On the other hand， as an important member of state-owned banks， BOC can get more opportunities to communicate with other international banks （e.g. The HSBC Group， the Standard Chartered Bank， Citibank， etc.）. Therefore， in the international financial market， BOC could provide fundamental products and services with competitive strength.

Moreover， the rapid development of Chinese economy can promote profits from banking activities， in particular， commercial banking activities （including deposit， loans， cooperation with financial institutions， etc.） as the fundamental activity of BOC provides massive benefits.

3.4. Threats

Although branches of BOC cover 29 countries and regions， a large proportion of these branches are distributed in the Asia-Pacific Area （including Hong Kong， Macau， and Taiwan）. Therefore， BOC lacks absolute international market strength and powerful market control.

In addition， economy development can also cause the increasing competition between Chinese banks which will put pressure on BOC operation by reducing price， product line extension as well as low transaction fee （Pan and Qiu， 2010）. The development strategy of BOC is more concentrated on domestic development opportunities， on the other hand， BOC still remains a learning stage in the global financial market so it lacks a planning for the competition with other advanced international banks.

4. Conclusion

China entered into the WTO as the main reason for the connection between the Chinese and the global markets. Therefore， the economic integration significantly promotes the growth of Chinas GDP. Moreover， the income gap restricts the development of BOCs operations in the Chinese rural area. In addition， technology development makes convenient for consumers， but it also cause more competition between the banks.

In conclusion， due to a rapidly growing in economic globalization and international trade， BOC can achieve a stable development in traditional activities and gain abundant experience in international business. Moreover， rising in business strengths mainly relies on outstanding reputation， wide branches network， as well as forward settlement and sale. However， there is an obvious imbalance of market strategy. Therefore， BOC may lack the international market strengths and get more competition pressure in the global market.

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