By Ruth Morris
SHANGHAI— When Peru and China appear in the same sentence, the word "mining" is usually nearby. Peru is small and mineral rich; China is huge and resource poor, and is buying up billions in Peruvian copper and iron ore.
But Juan Carlos Ríos Cobos uses a different set of words to describe the two countries’ economic relationship. He speaks of ATM withdrawals, guarantee letters and lots and lots of table grapes.
As head of the Interbank Group’s representative office in Shanghai, which opened for business in 2007, Ríos has quietly been forging a new kind of business model— one in which the bank helps to match Chinese investors with Peruvian development projects, then switches hats and also operates as a trading company, helping Peruvian exporters to sell their grapes, wood flooring and giant squid to China’s increasingly wealthy consumers.
"In many countries, you do either banking or trading. In Peru, you can do both… so we are taking advantage of that," Ríos said from his office in Shanghai’s Pudong business district. "We are the only Latin American bank developing this strategy in China."
So far, it’s paying off. Ríos says his office has generated $180 million of new funds flowing through the bank in the last two years. He expects those flows to increase by 30 percent in 2012.
While Interbank is not the leading bank in Peru, he said, "We think we have a very leading position as a bank specializing in China. And that will give us a competitive advantage in the long run."
Interbank is Peru's fourth-largest lender by assets.
Mining, Infrastructure, Energy
Mining has come to dominate Chinese-Peruvian trade. In 2011, Peru’s exports to China hit $6.9 billion, posting a 30 percent increase from the previous year and making the Asian giant its No. 1 export market. Mining accounted for the lion’s share-- about $5.5 billion— while fishmeal made up more than $1 billion.
Peru is not alone in relying so heavily on commodity exports to China. But China’s recent slowdown has underscored the dangers of putting so many eggs in the raw materials basket.
Ríos said Interbank was interested in seeing clients move up the value-added scale. But the bank also wants to follow Chinese companies back to Peru, an initiative that dovetails with China’s "going out" policy that encourages Chinese companies to stake out foreign markets.
If Interbank’s Shanghai office can connect Chinese companies and investors to Peruvian projects in mining, infrastructure and energy, Ríos said, the bank can also find ways to participate in the deals.
"The idea is, bring them to Peru, find an opportunity to participate as a bank, and then see what else we can offer in terms of financial services and financial solutions to these Chinese companies," Ríos said. "We are generating the business from the very beginning."
Already Interbank has furnished the guarantee for a $71 million Chinese water supply project in Peru. It also offers credit lines, cash management and payroll services to Chinese companies once their Peruvian projects get off the ground.
When Chinese companies see Interbank already has a presence on their home turf, Ríos said, they’re more likely to turn to the group for their banking needs in Peru.
Meanwhile, Interbank’s commercial office in Shanghai, IFH Peru Ltd., has been helping Peruvian exporters carve out a niche in China.
Ríos pointed to the sale of Peruvian table grapes as one of its biggest successes. Last year Peru exported 1,230 containers of grapes to the Middle Kingdom, marking a sharp 40 percent increase from the year before.
Peruvian grapes ripen from November to February, a season when virtually no other country is producing them. What's more, Peru's harvesting window falls around China's most important holiday, the "Spring Festival" or Chinese New Year, when revelers often give grapes as gifts.
Thanks to its trading company, Ríos said Interbank can follow clients from one country to the other.
The bank might offer loans to a grower to develop an orchard in Peru, or step in with a leasing contract when the grower needs a packing house. Then, once the grapes arrive in China, he said, "The grower will be talking to our company in China, because we are going to help you on the trading side, to distribute and to find the right buyers."
Experts say Latin America is especially well positioned to sell food products to China as the country’s middle class grows, travels, and becomes curious for new treats. China’s urbanites are already gulping down Colombian coffee and sipping more and more Chilean wine.
"We want to depend on ourselves and now we’re going to boost domestic consumption," said Gary Liu, executive deputy director at the China Europe International Business School in Shanghai. "That means there is a huge opportunity for a lot of premium products coming into China."
Liu predicted China’s growth rate would remain around 8 percent in coming years, despite recent economic slackening. Housing prices have been slipping in many Chinese markets, and experts warn China’s rush to build massive new infrastructure projects—from highways to subways to opera houses— may have left the country’s bad loan ratio hovering around 30 percent.
"I think China will continue to consume. China is still a manufacturing society," Liu said of the country’s appetite for Latin America’s iron ore, copper, iron ore and other commodities.
Interbank has one more feather in its China cap: a partnership with China UnionPay.
Unknown to most people outside China, UnionPay is the country’s only domestic bank card organization with more than 2 billion cards in circulation. That puts UnionPay in third place behind Mastercard and Visa.
Ríos said Interbank was the first local bank in Latin America to acquire UnionPay, and remains the only UnionPay partner in Peru.
"Now any Chinese or Asian tourist or entrepreneur going to Peru can use the UnionPay card in our ATM, or in any other shop or restaurant or hotel where they’ll be staying or spending money," Ríos said.
"We have two highways," Ríos said of Interbank’s dual role in China. "It’s working well on the banking side and on the trade side. What we have to do now is select the right businesses and the right partners and put them on the highway."