Ping acknowledged the need for the official strategy to reform state-owned banks through recapitalisation, disposal of non-performing loans (NPL) and share-offerings to foreign investors. "Although an open-door policy to the admission of qualified and reputable foreign banks seems overwhelmingly to be the best policy, there are various concerns about the local presence of foreign banks," said Ping. He added that there were legitimate concerns about both the potential threat to China’s financial security and the confidentiality of banks’ proprietary information.
"The public debate on the role of foreign banks is politically sensitive and will have an impact on regulatory policy," he continued, pointing to the Citigroup and Société Générale bids for 85% ownership of the Guangdong Development Bank – a level well in excess of the current 20% ownership limit for a single foreign bank, or the 25% combined foreign ownership limit. However, the state-owned bank’s high level of non-performing assets means it is considered to be a special case.
But Ping explained that such regulatory concerns were not unique to China, giving the example of Newbridge Capital’s $480 million payment for the Korean government’s share in the Korea First Bank in 1999, which the Texas-based Asian investment specialist sold for $3.3 billion in 2005. "Foreign investors’ penchant for short-term gains undermines long-term business investment and the country’s growth potential," said Ping.
The week on Risk.net, July 7-13, 2018Receive this by email