Just wanted to give some perspective on how the stronger and better managed American banks (like BOA, a bank from North Carolina) have been making money with Chinese bank stakes.
Dec. 4 (Bloomberg) — China may resist calls by the U.S. government to loosen restrictions on foreign ownership of its banks, a person familiar with the matter said.
Chinese rules limit overseas ownership of local lenders to 25 percent, with a 20 percent ceiling for any individual foreign investor. The government may consider loosening the curbs in special cases, such as a bank being in distress, the person said, declining to be identified as deliberations are private.
China’s stance is a setback for outgoing U.S. Treasury Secretary Henry Paulson, who has pushed for more access to a nation that’s home to three of the world’s four largest banks by market value. U.S. lenders have hung on to their investments in China, even as they sold assets and cut jobs elsewhere to cope with the global credit crisis, and Bank of America Corp. this month spent about $7 billion to double its holding in China Construction Bank Corp.
“Foreign banks remain very interested in investing in Chinese lenders, even in the current circumstances,” said Liao Qiang, a Beijing-based analyst at Standard & Poor’s.
The restrictions bar HSBC Holdings Plc, Europe’s largest bank, from becoming a controlling shareholder in China’s fifth- biggest lender, Bank of Communications Ltd. London-based HSBC, the largest foreign bank in China with 77 outlets, has said it wants to raise its holding in BoCom to 19.9 percent from the current 18.6 percent.
HSBC also has an option, which took effect in August, to lift its stake to 40 percent should Chinese rules permit.
Foreign Risks
China opened its banking industry when it joined the World Trade Organization in 2001 and began reorganizing state-owned lenders mired in bad loans. Bank of America, Goldman Sachs Group Inc. and HSBC were among foreign institutions that were allowed to invest in Chinese lenders preparing to go public.
In total, foreign investors paid $21.3 billion for stakes in 25 Chinese banks, according to the nation’s banking regulator.
The global financial crisis that toppled Bear Stearns Cos. and Lehman Brothers Holdings Inc., and triggered almost $1 trillion in losses and writedowns at financial firms worldwide, forced China to rethink the risks of allowing greater foreign investment, the person said.
Lou Jiwei, chairman of China’s $200 billion sovereign wealth fund, said yesterday that he wouldn’t “dare” invest in foreign financial companies after losing $6 billion on stakes in Morgan Stanley and Blackstone Group LP.
While relaxing ownership rules wouldn’t “significantly” increase risks in China’s banking industry, the government might come under domestic pressure for allowing foreign banks to benefit too much from relatively favorable interest-rate regulations, said Liao.
China Windfalls
Bank of America invested $3 billion in China Construction Bank — the nation’s second-largest — in 2005, and added another $1.9 billion in June. The value of its holding almost tripled to $14.5 billion as of Sept. 30, according to a regulatory filing. The biggest U.S. bank by market value this week exercised an option to raise the stake to 19.13 percent.
Goldman Sachs invested $2.6 billion for about 5 percent of Industrial & Commercial Bank of China Ltd. six months ahead of the Chinese bank’s record $22 billion initial public offering in October 2006. The stake is now worth $8.9 billion.
Government-led recapitalizations, foreign investment and share sales have strengthened the finances and profitability of Chinese banks. Combined net income at China’s 14 publicly traded lenders rose 67 percent from a year earlier in the first half, and their non-performing loan ratio dropped to a record low.
Foreign banks operating in China fared even better. Their total profit more than doubled to 10.1 billion yuan ($1.47 billion) in the first nine months this year, buoyed by an expanding economy. Even so, foreign lenders controlled only 2.3 percent of China’s 59.3 trillion yuan of assets as of Sept. 30, according to the banking regulator.
You can also see how they have added to their stake recently, and this may have panicked some of the local Chinese funds who are buying in now also in case they miss the bottom. This has made the Chinese index quite strong recently, it really appears to have made some kind of bottom and might be at the start of a recovery phase. This means that it is the strongest and most bullish of a all the big markets presently.
Probably because we don’t have an Obama here, but I digress.
In your context we can see how not every American bank mismanaged itself and lost everything, but there are actually some that have been quite safe and are positioned to take advantage of this downturn if they can.
What a far cry from the behavior of Citigroup, which was confidently trying to buy up Wachovia, only to need a bailout itself barely a month later. Their CEO, Vikram Pandit, hailed as a hero and Obama-like messiah by the MSM when he took over Citi in Dec last year, is now being heavily criticized for calling Citi a “pillar of strength in troubled times” and implying that Citi’s buy of Wachovia would be sign that it had turned the corner for the better.
Incidentally Citi’s largest shareholder before the bailout was Prince Al-Waleed bin Talal of Saudi Arabia, followed by the Singaporeans, who came in only recently.
Thus do we have our “slice of life” from the financial world.
One of these days the Chinese are going to end up owning everything so we better get a stake in while we can. We do need to insist on the Chinese permitting free and fair trade.
My concern is that once China has established itself as an economic superpower (in some ways it already has) there will be a greater push for it to become a military superpower too.
And if this happens at the same time the U.S. is forced by Obama and friends to give up our predominant world role we are all in trouble.
I would not make long term investments in China. Because when they are strong enough they will “confiscate” all the factories, properties, money, etc. that is foreign owned.
They are smart enough to know when they can do it. and get away with it. So for now you are okay, but don’t bet your retirement on it.
There may still a problem with the free and fair trade with the mainland, I am not up to speed on this, and unbiased data may not be easy to obtain.
But anecdotally, many foreigners have gone to china and made money from their investments there. Their factories and produced goods are profitable with cheap skilled labour(made in china and shipped to US and world), their chinese properties made money when the market went up, and they are able to bring their money out of china without much problem. At least I have not heard of anyone complaining.
The main problem investors in china face is that the locals copy their franchise or technology, then set up another factory and produce the same stuff at one-third the price to kill you.
It’s licencing and copyright enforcement that is still very poor.
If you look at the stuff in one of your walmarts, you’ll see that many things were made in china. From plastic toys, fabrics, tools, foodstuffs to electronics. They even make .45 1911s in china and these are used by quite a number of american smiths as a base to customize the standard stuff onto them(eg: Ed Brown??)
All these american companies would not be making stuff in china unless it is profitable for them.