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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (48338)	3/19/2006 12:52:10 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

China to retain control over small- and mid-sized lenders - CBRC official BEIJING (AFX) - The government will retain control over small- and mid-sized lenders as well as its biggest banks even as it continues to encourage foreign investment in the sector, a banking official said. Tang Shuangning, vice-chairman of the China Banking Regulatory Commission (CBRC), stressed at a forum in Beijing the importance of state control over domestic lenders, while rebutting criticism that equity in state-owned banks has been sold too cheaply to offshore investors. 'China will maintain control over commercial banks including small- and mid-sized banks,' he said on the sidelines of the forum. China has sold multi-billion dollar stakes to offshore investors in three of its four biggest banks in order to boost their capital adequacy and management expertise. The introduction of foreign strategic investors is part of moves to restructure the banks ahead of the full liberalization of the sector by the end of this year under China's World Trade Organization commitments. Beijing has nonetheless stopped short of offering offshore investors majority control over any domestic lender, capping ownership in local banks to 20 pct for a single foreign investor. Two or more foreign investors are limited to a combined stake of 25 pct. China's premier Wen Jiabao told reporters last Tuesday that the state will maintain control of the country's major banks, warning of the danger of 'stripping' state-owned assets. Tang's restatement of the party line specifically extends it beyond the nation's so-called 'big four' banks to take in smaller lenders. He noted that while foreign equity posed no danger to the security of China's banking system, '(state) control provides a safeguard'. The latest comments come amid continued official silence on the outcome of a bid led by Citigroup for China's Guangdong Development Bank which could see the US banking giant take a more than 40 pct equity stake in the mid-sized commercial bank. Tang refused to comment on the bid when asked about the matter on the sidelines of the forum. Singapore's Temasek earlier this year was forced to reduce its planned purchase of a 10 pct state in Bank of China to five pct after the Chinese lender's biggest shareholder, state investment arm Central Huijin, reportedly objected to the larger purchase. The government last year was accused of selling stakes in major banks such as China Construction Bank and Bank of Communications too cheaply. Their foreign partners saw the value of their investments rise dramatically after the lenders listed in Hong Kong last year. Tang directly addressed the criticism in his speech, saying that prices for China's banks were set by negotiation as well as market supply and demand. 'From a technical point of view the price-to-book value is reasonable,' he said. The official said that China still needs to attract foreign investors to help improve the management of domestic lenders and develop experience with new products and services. He also said that China will increase scrutiny of the overseas branches of Chinese banks and communicate more with overseas regulators about foreign banks entering the market. He did not elaborate further on this. Tang sounded a cautious note on local private equity in China's banking sector, calling for a 'prudent attitude' towards such investment. 'It's not that private capital is excluded. It's just that there are enough banks. Presently the risk is rather high.' Tang said that local firms would only be able to own banks if they did not run them, given the risk that businesses could use their equity stakes to fraudulently secure loans. forbes.com