China to overtake US as biggest banking economy by 2023—PwC

Experts expect domestic banking assets to exceed US$30 trillion by 2030. 

China is expected to overtake the US to become the world’s biggest banking economy by 2023. This is 20 years earlier than predicted before the financial crisis. The country’s domestic banking assets are also expected to exceed US$30 trillion by 2030. These findings were revealed in PwC’s ‘Banking in 2050’ report. 

“The study does not come as a surprise. Three of the largest banks in the world by market cap are Chinese. Chinese banks remain financially sound thanks to the banking reforms put in place since the aftermath of the Asian financial crisis almost 15 years ago. The outlook remains stable and its banks have adequate cushions against rising NPLs,” says Raymond Yung, PwC Financial Services Leader for China. 

Meanwhile, India could overtake Japan to become the third largest domestic banking industry by 2035, after China and the US, if it continues to pursue growth-friendly policies. In the longer term, it could potentially overtake China as China’s rate of growth rate slows down over time due to its rapidly ageing population, a result of its one-child policy. 

The report also finds that by 2050, the combined domestic banking assets of the E7 emerging economies (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) will exceed those in the G7 countries (US, Japan, Germany, UK, France, Italy and Canada) by an estimated 50%. 

Analysis conducted by PwC in 2007 projected that E7 domestic banking assets would overtake G7’s in 2046. The updated projections see this date brought forward by a decade to 2036. This reflects the fact that the global financial crisis has hit the G7 much more severely than the E7. The analysis is based on GDP, domestic banking and banking profitability projections, and assumes governments follow broadly growth-friendly policies, and that no catastrophic events throw growth permanently off track. 

“A fundamental shift in the geography of the world economies will take place during the working lifetime of those at the start of their career, with huge implications for job creation, language learning and financial systems. The GDP of the E7 countries is currently well behind that of their G7 counterparts. But we’ll see them at level pegging within the next two decades and well ahead within the next four,” says John Hawksworth, PwC’s chief economist. “In the banking world, this shift is happening even faster than anticipated. It appears to have been accelerated by the financial crisis as banks in the emerging market have been relatively shielded from the effects of declining asset values. We could now be talking about global banking assets quadrupling to around $300 trillion by 2050 with banks around the world fighting for a share,” adds Mr Hawksworth. 

Shifts from G7 countries to E7 economies in the global shares of domestic banking assets and related profits are accelerating following the financial crisis. With a range of M&A options available to banks from both emerging and developed markets, a mix of consolidation are expected, whereby foreign banks are poised to enter emerging markets, while banks from the E7 expand overseas. 

Changes in regulation since the financial meltdown will also play a profound role in the development of the banking sector as the industry continues to evolve in the next few decades.