China Privatizes its Banks?
June 18th, 2005The Bank of America–China Construction Bank deal was formally announced Friday. BOA will spend USD 3 billion for a 9 percent stake prior to the CCB IPO.
David Barboza writes about the deal for the New York Times here. The headline “Chinese Bank Takes Lead in Privatizing” seems wildly inappropriate. CCB will get some private investors, but it won’t be privatized. BOA only gets 9 percent. Even after its forthcoming IPO, the majority of the bank’s shares won’t be in private hands.
Still, CCB’s reforms may be consequential. BOA will presumably get board representation. Foreign directors may influence things without having outright voting leverage. Also, after IPOs, PRC banks will be subjected to foreign disclosure regimes—and perhaps more importantly foreign enforcement mechanisms for those regimes.
The Times article identifies some key issues PRC banks face—corruption, NPLs, foreign competition, bloated staff and excessive branches. It’s a pithy introduction to China’s banking sector.