German Bank Brings Home Savings Plans To China

"We can do almost anything except speak proper German," an advertisement for the mortgage company Schwäbisch-Hall reads. The company comes from the Swabian region of the southwestern German state of Baden-Württemburg, which is known for its thick regional accent.

The locals are also famous for being good with money, perhaps aiding Schwäbisch-Hall to become the first foreign firm to provide financial services to China. The company beat out such global players as Citibank, Credit Suisse and Deutsche Bank in reaching the growing and likely lucrative Chinese market.

In February, the company -- Germany's largest home loan bank -- entered into a joint venture with the China Construction Bank, creating the Sino-German Bausparkasse ("Home Loan Bank"). The company's three German managers and 35 employees are now marketing house savings accounts based on the German model.

German home loan banks have long offered their customers the so-called Bausparkonten (house savings accounts), whereby customers make regular deposits to a special account in return for the right to obtain a mortgage loan after a set savings goal has been reached.

It's an idea that seems to be catching on with the Chinese.

5,000 calls a week

"It's going relatively well in China," the company's spokesman, Sebastian Flaith, told DW-WORLD. "We're advertising intensively there for the house savings accounts, explaining them in TV spots that are as long as three minutes. We've also set up a hotline so the Chinese can inform themselves." The company says it is registering as many as 5,000 calls per week on the hotline looking for information.

Nevertheless, the number of contracts that have been closed have been lower than Schwäbisch-Hall had hoped for, with only 1,500 signed customers brought on board by the beginning of April. But Flaith said the figures still fell within the company's corridor of expectations. There's still a lot of catching up to do if the company wants to reach its stated goal is to close 40,000 contracts by the end of the year, growing to 120,000 during the following two years.

A growth market

Customers use house savings accounts to come up with the down payment they need to obtain a larger mortgage to purchase a home or apartment. In China, the average amount people get through their house savings account is €7,500 ($9,066), with individuals able to get an advance on the total amount after they have saved about half that much. The figure is considerably lower than in Germany, where, owing to higher real estate costs, an account holder needs about €20,000. Despite the fits and starts, China is considered an immense growth region in this sector. The government in Beijing is currently privatizing the market for apartments and the construction market for new units is booming. Last year the sector pulled in revenues of €80 billion, and this year they are expected to exceed €100 billion.

China is only the latest market for the successful export of Germany's so-called Bauspar model. The passage of a new law regulating Germany's home loan banks in 1991 for the first time permitted them to operate abroad. Two years later, German market leader Schwäbisch-Hall joined forces with PSS (the first home loan bank in Slovakia) to bring house savings accounts to the Czech Republic. Today the joint venture has an overall market share of 40 percent.

"Business is going particularly strong in the Czech Republic," Schwäbisch-Hall's Flaith said. "Back then the demand was so huge we had to put the contracts in laundry baskets and deliver them in old Skodas," he recalled. Today, two-thirds of all Czech people have house savings accounts.

Looking east

Slovakia and Hungary have also become important markets for the Swabian company. Taken together, the three Eastern European countries closed 1.2 million new contracts in 2003 with a total savings sum of €7.8 billion. By comparison, Germans closed 1.3 million contracts with a savings volume of €31.1 billion.

"Growth markets are a central theme in our corporate strategy," he said, "and that's going to continue in the coming years."

There are risks entailed with doing business in a Communist country -- the Chinese could expropriate or kick out a business at any time. But executives at Schwäbisch-Hall are confident they will succeed in the market, with cooperation from the Chinese. The company believes its technology alone, including highly developed financing software, make it an indispensable partner.

In a recent interview, Sino-German Bausparkasse CEO Hans-Dieter Funke said the company's technology, combined with its savoir faire, would ensure its viability. Such know-how, he noted, isn't easy to copy. But the sheer importance of the Chinese market means the company will have to stay sharp if it wants to keep its head start over the competition.