(A short note written for and published by the Asymmetric Threats Contingency Alliance (ATCA) dated 25 July, 2007)
The world sits up as China Development Bank (CDB) is buying a multi-billion Euro stake in Barclays, along with Singapore government’s Temasek. This could see the CDB’s stake rising from at least 3.1% to 8% to become by far the biggest shareholder in this major British bank. Learning from her previous US adventures, the Barclays deal, before being signed, was well ventilated with the highest level of the British government, including the Prime Minister. The deal would strengthen Barclays’ current bid for the Dutch bank ABN-Amro.
From China’s earlier foiled bid for UNOCAL in the US, to her recent smoother takeover of MG Rover, and to her new stake in Blackstone, China’s capital seems to be coming thick and fast. The Barclays bid is certainly not the first, and is unlikely to be the last. We are seeing a move from ‘Made in China’, to ‘Made by China’, and now, as Dr Gerald Lyons, Chief Economist of Standard Chartered Bank likes to call, to ‘Owned by China’.
As Temasek has already become the largest shareholder of Standard Chartered Bank, it is evident that Asian capitalists are emerging on the global scene. But unlike Temasek, China’s capitalists with global ambitions are facing an uphill learning curve to become more internationally savvy. Working side by wide with some of the world’s top players in joint ventures or equities is a good way to pick up the management and investment skills.
What is more, the relative limited private investment outlets in China has led to over-concentration of investment (read speculation) in China’s nascent stock markets, leading to roller-coaster rounds of ‘musical chairs’. [‘The China Black Swans‘, ATCA, 14 June, 2007]
This underlines a major threat to China’s stability — her under-developed financial services, including a banking sector still dominated by state-controlled banks. The skills necessary for their developments are also best learnt by welcoming some of the world’s leading banks on board through equity stakes in some of China’s largest banks, as what has already happened in recent months.
Additionally, China’s embarrassment of riches in her Foreign Currency Reserve is both a huge challenge and an opportunity. It now amounts to USD 1.33 trillion, growing by the day at over 20% per annum. This not only serves to underpin China’s financial security but also leads to mounting international pressure on appreciating the RMB too much and too fast for China to handle. Besides, a great deal of this accumulation is invested in US Treasuries, earning very low return while creating a vicious circle of global financial imbalance. Although much of this mountain of gold is required to improve the dire health, education and welfare services for China’s poorer masses, not all can and should be invested internally, if only to avoid the risk of inflation. So there is every incentive for China’s state capital to go global.
As we have seen in recent months, outward investment in energy, resources, and corporations beneficial to China’s industrial and financial development is gathering speed. I have also called for some of this sovereign fund, now managed by China’s Temasek-styled new agency, to be invested (along with the petrodollars) in global responses to Climate Chaos. [‘China and the Middle East: an Eastern Alchemy for Global Harmony‘, ATCA, 17 February, 2007].
Morgan Stanley has estimated that such sovereign funds assets worldwide could swell to USD 12 trillion by 2015. It is not inconceivable that a substantial part of this tidal wave of global capital will come from China.
Andrew K. P Leung, SBS, FRSA
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