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11:24 AM
Jessica Pallay
Jessica Pallay
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Chinese Banks Increase Tech Spend

An immense branch network, entry into the WTO and domestic competition will call for significant IT spending in China, according to Celent.

Retail and corporate banks in China will see a $6 billion increase on technology spending by 2005, according to a recently released Celent Communications report.

"In general, the banking technology in China is behind the technology being used in Europe, the U.S. or Japan," explained Celent analyst Neil Katkov. "China is now playing catch-up by revamping and putting in new banking systems."

China has an estimated 232,000 bank branches, more than the U.S., Germany, and Japan combined. But more than 30 percent lack branch automation technology beyond the telephone, Katkov notes. That leaves a lot of room for increased technology spending.

China's entry into the World Trade Organization has also spurred technology change at banks. As part of this agreement, foreign banks can enter the Chinese banking market in 2007. Chinese financial institutions will have to upgrade their systems to keep pace with better-equipped and more experienced overseas corporate banking competition, according to Katkov.

Another factor is domestic competition, especially for customers in the expanding urban markets of China. "A lot of retail customers are switching banks based on services offered, so banks are going after potential customers in a big way," Katkov said. These channel variants include availability of ATMs, foreign exchange services and improved interest rates, he added.

The impendent technological expansion will affect mostly city-dwellers, particularly those with higher incomes, said Katkov.

"Much of China is still very underdeveloped and lacks infrastructure so it will be a while before the whole population is using sophisticated banking technology," he said. "It's going to be an urban story for a long time."

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