China Bails Out Its Banks

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Oct. 12 – Beijing has used the state-owned Huijin Sovereign Wealth Fund to purchase stocks in China’s four largest banks – Agricultural Bank of China, Bank of China, Industrial & Commercial Bank of China, and China Construction Bank – in moves made to support the share prices of each of the banks, as well as the markets overall. Huijin is now in the somewhat odd position of owning a controlling stake in each of China’s biggest banks.

Huijin has stepped in to support share prices as markets in Shanghai and Shenzhen have declined significantly over the year, while the banks themselves have been dealing with bad debt issues following Beijing’s policy of providing easy credit terms to support the economy during the Global Financial Crisis in 2008.

China’s official view is that the banks represent a good investment as “the fundamentals aren’t expected to change anytime soon.”

In Shanghai and Hong Kong yesterday, shares in the banks rose as follows:

China’s banks have had to consistently raise their liquidity levels to deal with bad debts issues, and yesterday’s purchase of shares by Huijin seems a strange move. Whether it was engineered to show support for the stock market (and if so, who benefited from this?) or whether it is a longer term move to provide a single focal point for the management of China’s banking remains to be seen.

2 thoughts on “China Bails Out Its Banks

    Chris Devonshire-Ellis says:

    Personally, I don’t see the controlling ownership by Huijin of the four biggest banks in China to be a positive step in any way. Firstly, they are a sovereign fund, not bankers, and should be having a different function to perform than acquiring stocks in already massive banking giants. I don’t get that, especially as they said they didn’t expect much change in value. That doesn’t ring true to me.
    Secondly, having a controlling interest, as they are now, I would have thought severely compromises both the executive talent pool in banking operations at all of these banks, leading to a downturn in operational and managerial intellect, and third, I can envisage that they’ll all be treated in a similar manner, diluting their competitive edges within their individual banking sectors. The BoC, CCB, ICBC and AgBank fulfill different roles – but with the same people at the top how will there be diversity?
    This sends out warning signals to me rather than any comfort, even if the markets did go up. I don’t view this as necessary or positive development and it raises far more questions than it answers. – Chris

    Thomas says:

    In the West, the Corporations and Banks own the government. In China, the government owns the Banks and Corporations! Governments have responsibilities to its citizens, corporations and banks are only their to make money for their share holders. Understand now why the West is in the shape its in and why the bail out money went towards the corporations/banks and not the unemployed masses facing foreclosure and bankruptcy!

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