Location: New York
Author: Lenny Broytman
Date: Monday, October 29, 2007
After years of explosive expansion, China is no longer limiting its exports to manufacturing and has taken the next step, plunging into the foreign banking sector with a major stake in a South African Bank.
According to the Wall Street Journal, Industrial & Commercial Bank of China LTD (ICBC), has announced that it has purchased a 20 percent stake in Standard Bank. The institution is South Africa ’s largest and is receiving some $5.5 billion from the nation that experts say will rule international finance by 2050.
The new comes just a week after another Chinese institution, Citic Securities Co. said that it would put up $1 billion into the troubled Bear Stearns Cos. As part of what the Journal refers to as “a strategic alliance.” And Citic is not alone; over the course of the last few months, State policy lender China Development Bank took a $3 billion stake in Barclays PLC. Joining the pack over the summer, Blackstone Group LP received $3 billion for a 9.3 percent stake from Beijing .
And putting up money for foreign banks is not the only capital the booming nation seems to be exporting these days. Chinese oil and commodities firms have also begun to invest in Africa at an extremely rapid pace. And the nation’s pockets are filling up quite nicely as a result, with the World Bank reporting that current-account surplus is expected to reach an astonishing $378 billion (roughly 11.9 percent of total gross domestic product for 2007). Furthermore, the Chinese government has said that its economy grew at an amazing annual rate of 11.5 percent in the third quarter, despite global hardships resulting from the ongoing US subprime troubles.
“In contrast, the stocks of Chinese banks keep on rising,” said David Li, director of the Center for China in the World Economy with Tsinghua University in Beijing . “Liquidity is very strong. What do you do when you have cash? Invest.”
After bouncing back strong from a domestic banking sector clouded by bad loans, the Chinese economy is becoming more and more attractive to foreign entities.
Just two days ago, the Journal said that “ICBC reported third-quarter net profit of 22.46 billion yuan ($3 billion), up 76% from a year earlier on higher interest income, fees and commission income. Its assets now total a trillion dollars, and for the nine months ended Sept. 30, it had cash and cash equivalents of 4274 billion yuan.”
The positive news does however yield a few concerns, as the Chinese government looks to do what it can to limit the amount of risky investing among its own that often arises with such deep pockets. Just last week, at a national Communist Party that is held twice every ten-year period, party chief Hu Jintao noted that the nation would “accelerate the growth of Chinese multinational corporations and Chinese brand names in the world market.”
The Wall Street Journal further reports that the country had total investments in Africa of just about $11.7 billion as of last year (China’s Ministry of Commerce). Just yesterday, ICBC Chairman Jiang Jianqing noted that “Our strategic cooperation joins the hands of Asia’s largest bank and Africa ’s largest bank… this will help push forward the development of Africa-China trade relations.”
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