China's banks are coming. They are big, powerful and they are expanding globally. Today the two biggest banks in the world by market capitalization are Chinese, and Chinese institutions occupy four of the top 10 positions in the global rankings.

As with so much about China, the speed of ascent has been extraordinary. As recently as a decade ago, Chinese banks barely registered on the financial Richter scale and not until 2007 were any of them listed among the global top 20 by market capitalisation.

Today they are a formidable force and increasingly visible outside China as they help finance the global expansion of Chinese companies around the world.

Between the end of 2008 and the end of 2010 alone, China's Big Four banks saw overseas assets grow from 2.41 trillion yuan ($379 billion) to 3.43 trillion yuan.

Richard Lumb, group chief executive of Financial Services at Accenture, a leading global consulting, technology and outsourcing company

In March, Agricultural Bank of China became the latest to open an office in London, where a number of other big Chinese banks have established their own franchises. The pattern is similar in other parts of the world.

Last year, the Industrial and Commercial Bank of China (ICBC), the largest Chinese bank, paid $600 million for a controlling 80 percent stake in Standard Bank Group's Argentine subsidiary, having earlier taken a 20 percent stake in the Johannesburg based banking group back in 2007.

ICBC also opened branches in Paris, Brussels, Amsterdam, Milan and Madrid last year.

Bank of China (BOC), the most international of China's banks, has set a goal of becoming a truly world-class bank by 2020.

It is looking for opportunities to make smart acquisitions and is steadily opening new branches overseas, with an eye to having foreign markets account for as much as one-fifth of its revenues.

Indeed between them the top five Chinese commercial banks had opened 157 overseas branches in Europe, the Americas, Africa and South Pacific by the end of 2011.

For those who still remember the Japanese economic miracle during the 1980s, this may sound like a familiar story.

Back then, when Japan's economy and stock market were booming, the Japanese banks emerged as global powerhouses that seemed set for global domination. They too had grown on the back of one of the strongest economies in the world and by 1990 the five largest banks in the world by assets were all Japanese banks.

However, they were unable to translate this growth, powered by domestic deposits, into global preeminence. Today many of those giants have simply disappeared. Only one Japanese bank now ranks in the global top 20 by market value.

So will the story be different in China? Can China's banks make the transition from domestic powerhouses to truly successful global players? At present Chinese banks are still essentially domestic institutions, whose growth mirrors the expansion of China's economy.

They are heavily reliant on income from generous net interest margins — the difference between the interest banks pay out on deposits and funding, and the interest they collect from making loans — in a semi-protected, government-controlled economy. Furthermore they face little international competition in their core home market.

The likelihood is that this will change eventually but not for a while. In the meantime, China's banks have time and financial firepower on their side. For a start, they are extremely profitable.

Accenture Banking Marketing and Distribution Services' benchmark of 85 global banks shows Chinese banks averaged 22 percent return on equity during the first nine months of 2011, while those in the Americas averaged 15 percent, the rest of Asia-Pacific averaged 10 percent, and those in Europe, the Middle East and Africa averaged 10 percent.

However, the Chinese banks still face a formidable task in matching or overtaking their Western counterparts. Perhaps the biggest one is being able to rapidly acquire the expertise, the sophisticated products and the technology they need to match the Western banks. It is true that high savings rates in China have created demand for new savings and payments products and Chinese banks have been increasing the sophistication of their technology — both to analyze customer data and provide the mobile and online banking services that today's consumers expect.

However, their Western counterparts still have a big competitive advantage in terms of accumulated human banking capital, sophisticated systems and product expertise.

The smart executives in the top Chinese banks are keenly aware of this. They know they lack experience in capital markets activity, managing foreign investment and international assets. They may be perfectly capable of providing standard banking services to Chinese companies operating abroad but they have limited experience in providing higher value-added financial services to either Chinese or non-Chinese businesses.

One of the key decisions facing Chinese banks is how to acquire the expertise they lack in-house. Do they buy it in through acquisitions? Do they develop it in-house gradually over a period of years? Or do they hire Western bankers to learn from them? Or do they follow a combination of all three?

The attractions of buying in expertise and high-tech banking systems through acquisition look compelling at a time when many Western banks are trading well under book value. But there are numerous regulatory obstacles to be taken into account. Nor do Chinese banks have much experience in identifying acquisition targets or strategic partners outside China.

The danger when banks expand through acquisition into foreign markets is that the locals see you coming and you end up making poor acquisitions due to lack of local knowledge; the history of foreign banks expanding into the US is littered with such cases.

A combination of judicious acquisition and smart alliances with foreign banks are likely to be the best route. Already Chinese banks have used links with foreign lenders and collaborative exchange programmes to improve their risk management, finance and human resource functions and to gain expertise about sophisticated products for business customers.

Striking the right balance between the lucrative domestic market and overseas expansion will be important to success, not least because many overseas markets are mature and overbanked. Of course others are much less developed.

One of the advantages Chinese banks have is that Chinese companies have made significant inroads into many other emerging markets in Africa and South America and expanding into these territories offers the promise of higher returns.

Banking profitability in emerging markets is much higher than in the mature Western economies and big Western banks such as HSBC and BBVA already make about 40 percent of their profits from emerging markets.

Still, it's no sure bet on those markets either. Recent analysis from Accenture shows that bank customers in emerging markets are twice as likely as those in mature markets to jump to another bank.

To succeed internationally, Chinese banks will need to take on board some important lessons. They will need to acquire genuine local market knowledge. They will need to develop skills in doing deals and making acquisitions. Joint ventures with trusted local brands are another route into new markets. Acquiring top-class systems and information technology skills is essential.

China's banks have some extremely talented, outward-looking executives and above all they understand where they need to learn from others. Making the transition from domestic to international dominance does not happen overnight, but it would be a rash person who bet against the Chinese banks succeeding fairly quickly.