CHINA / Foreign Media on China
China may loosen grip on bank ownership
(FT)
Updated: 2006-04-11 10:32
http://news.ft.com/cms/s/ae77647e-c8f7-11da-b642-0000779e2340.html
China may be willing to loosen its control of the banking sector by
allowing the sale of controlling stakes in small and medium-sized lenders
once owned exclusively by the government.
The new policy, announced in a weekend speech by a senior regulator, may
also signal an increased willingness to open the sector to foreigners,
many of whom want controlling stakes in the banks in which they invest.
Tang Shuangning, a vice-chairman of the China Banking Regulatory
Commission, said: "The principle of state control only applies to large
banks and not to small and medium-sized lenders."
These big banks are Industrial & Commercial Bank of China, China
Construction Bank, Bank of China, Agricultural Bank of China and Bank of
Communications. All except Agricultural Bank have sold minority stakes to
foreign investors or have agreed to do so.
In addition to the "Big Five", China has over 100 city commercial banks
and a number of so-called shareholding banks.
China has only a handful of privately held banks and has been wary of
allowing entrepreneurial control of financial institutions out of concern
that funds will be channelled improperly to the owners and their
associates.
Foreigners are presently restricted to a maximum of 25 per cent equity in
Chinese banks, with individual investors capped at 20 per cent.
The preference given to foreigners ahead of the local private sector has
been one factor in a recent backlash against selling stakes in local
companies to overseas investors.
However, Chinese officials have argued that foreigners' technological
expertise and corporate governance standards are as important as the cash
they bring to the deals.
Xie Ping, the head of a company under the central bank, which controls
the large lenders, said at a recent internal conference that this
expertise was an important factor in choosing a foreign investor for
China Construction Bank.
According to notes of the meeting posted on the internet, Mr Xie said CCB
could "buy off" the securities regulator with "two meals", but could
never do the same with the foreign investor, in this case Bank of America.
The cap on foreign equity is being tested by Citigroup, which is leading
a foreign consortium applying to buy 85 per cent of Guangdong Development
Bank, in southern China.
The parlous state of GDB is believed to have prompted its owner, the
provincial government, to support the foreign investment limit being
waived for this deal, but top-level approval is still needed.
Citigroup is competing with France's Soci��t�� G��n��rale for GDB, but
may be able to leverage the trip to Washington this month by Hu Jintao,
China's president, to win approval.
Mr Xie said that Citigroup had not been able to buy into CCB because it
had offered too low a price.
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