Minority wrongsSamuel Johnson, the 18th century man of letters, said optimism was worth “more than a thousand pounds a year”. Western banks eyeing a minority stake in Bank of China must hope it pays out a bit more these days. BoC and its compatriot, China Construction Bank, are the flagships of China's efforts to reform its large but creaking financial services industry. Until now, foreign banks have invested cautiously there, dipping in their toes with investments in mid-size regional banks. But now they are being offered stakes in the multi-billion dollar flotations of BoC and CCB. And, with China's pool of deposits estimated at over $2,500bn, it is no wonder the likes of Bank of America and UBS are tempted.
China's big numbers are always difficult to argue with. But paying billions of dollars for a minority stake in a business plagued by corruption scandals requires rose-coloured spectacles of the brightest hue. Supporting listings of state enterprises in return for gaining entry to China's vast market makes sense on paper. But pulling it off has often proved tricky. BP, Shell and ExxonMobil all sold their stakes in Chinese oil companies Sinopec and PetroChina hardly a ringing endorsement of the strategy. Vodafone has absorbed a £300m write-off awaiting the big pay off from its 1997 China Mobile investment. There is speculation that the timetable to float BoC and CCB is slipping. Let us hope that that means foreign banks are thinking long and hard before making any great leap forward.
