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Barclay's deal part of China efforts to build investment overseas
2007-07-24
China's huge investment in Barclays Bank is part of the cashed-up Asian giant's plan to spend big on foreign assets around the world and deepen its global commercial influence, analysts said Tuesday. The deal announced Monday that the government-run China Development Bank could invest up to 9.8 billion euros in Britain's third largest lender would be China's biggest overseas investment. "We expect more deals in the future and believe there will be more investment in foreign assets by the state financial organisations," said Zhang Ming, world economics and politics researcher at the China Academy of Social Science. Under the deal, China Development Bank will take an initial 3.1 percent stake in Barclays for 2.2 billion euros. Then, if Barclay's bid for Dutch rival ABN AMRO succeeds, China Development Bank will invest a further 7.6 billion euros in Barclays. The agreement potentially dwarfs the so far biggest global investment by a Chinese company -- China National Petroleum Corp's purchase of Canadian-listed PetroKazakhstan for 4.18 billion dollars in October 2005. Over the past few years China's energy companies have answered the government's urgent call to seek venture abroad to secure the resources to power the booming economy, already the world's second largest oil consumer after the United States. As energy companies have ventured overseas, construction groups have followed to pave the roads and railroads of the third-world countries which will carry the resources being dug out for shipment to China. But as greater number of Chinese firms have headed overseas, so has the need for banks to offer greater financing options internationally, said Mei Yan, a senior banking analyst at Moody's Investors Service in Hong Kong. "The Chinese banks are huge banks. There is definitely a lot of need for them to follow their clients," said Mei. "Its natural for them to expand overseas." Analysts said that Chinese banks coffers are overflowing with cash after government cash injections that were then followed by record-breaking initial public offerings in overseas and home markets. In an early harbinger of the Barclay's deal, China's biggest bank, the Industrial and Commercial Bank of China (ICBC), made its first overseas buyout in December last year when it took control of Indonesian lender Bank Hali. The government is also looking to invest more directly and is in the process of setting up a firm that will diversify and maximise returns on 200 billion dollars of the country's huge foreign exchange reserves. The agency, tentatively named the China National Investment Corp, is expected to officially open for business in September but it has already put three billion dollars of the reserves under its management in US private equity firm Blackstone. China's foreign exchange reserves are the world's biggest at just over 1.33 trillion dollars. As a policy bank, China Development Bank's quasi-government status may raise concerns over the Chinese government taking a stake in one of Europe's largest banks. China's largest attempted acquisition was China National Offshore Oil Corp's failed 18.5 billion dollar bid for California-based oil group Unocal in 2005, which was scuttled by US lawmakers on security concerns. But Barclays chief executive John Varley said he was unfazed at the prospect of the Chinese government becoming the bank's dominant investor. "I am comfortable ... it's by far the biggest external investment ever made by China and it's very good for Barclays," he told reporters on Monday. He added that the deal would also give the British bank "unprecedented" access to the Chinese market.
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