Message to Beijing: Privatize the Big 4 Banks 对中国政府说：将四大银行退市吧

By newsdoug on October 11, 2011

China's big 4 banks: Beijing's weather vane I’m going to be a bit controversial today and make a bold suggestion that may seem obvious to some, namely that China should privatize its big 4 banks and let them resume their role as the state-owned policy lenders that they were for their first 50 years. The idea may sound extreme, but it’s exactly the approach that Beijing seems to be taking first by forcing its banks to issue billions of dollars worth of new shares to shore up their balance sheets last year, and now by announcing it will buy up even more of their stock to support their sagging shares. The banks’ majority shareholder, the central government-controlled Central Huijin, provided few specifics other than to say it has started buying up shares in the top 4 lenders, ICBC (HKEx: 1398; Shanghai: 601398), China Construction Bank (HKEx: 939; Shanghai: 6019399), Bank of China (HKEx: 1398; Shanghai: 601398) and Agricultural Bank of China (HKEx: 1288; Shanghai: 601288). (English article) Let’s review the facts: Huijin, which controls a third or more of each of those banks, already boosted its holdings in the 3 of the 4 last year when each made a multibillion-dollar share rights offering to strengthen their balance sheets after a year-long lending binge ordered by Beijing to prop up the economy at the height of the global financial crisis in 2009. This new buy-back will put even more of the banks’ shares into Huijin’s hands, boosting the central government’s ownership even further. Shares of all 4 banks jumped in late Monday trading in Hong Kong on the news, and we could well see those gains extended on Tuesday. But the banks’ shares are still down sharply over the last year, falling 40-50 percent from their 52-week highs. The main reason for their poor performance is that investors realize that despite their publicly listed status, all 4 banks still take their orders from Beijing and show no signs of changing those habits, making them less attractive as growth companies. That said, it would make more sense for Beijing to just end the charade and take all 4 of the banks private again so they can continue in their role as policy tools of the central government.

Bottom line: Beijing’s latest move to buy back sagging shares in the country’s top 4 lenders further underscores their function as policy lenders that should be privatized.

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