ANALYSIS-China in no rush to snap up credit crisis bargains
By Eadie Chen
BEIJING Jan 22 (Reuters) - To buy or to wait: the hunger of global banks for fresh capital just as share prices worldwide are plunging is giving China a crash course in market timing.
China is awash with cash. But with the global credit crunch getting worse and the investments Beijing has already made deep under water, policy makers are hesitant about striking new deals.
Media reports say the authorities last week blocked at the last minute a plan by China Development Bank to buy into Citigroup Inc (C.N), one of several banks that need to replenish capital wiped out by big subprime-related losses.
Some economists argue that excessive caution might cost China the chance to buy into Wall Street at depressed valuations.
But others say that Beijing, as a newcomer on the global financial stage, is right to watch and wait, especially as even bigger bargains could be on offer before long.
"It's absolutely necessary for China to pause now for a while and revaluate their past investments. A novice swimmer needs time to know how deep the water is," said Zuo Xiaolei, a senior economist at China Galaxy Securities in Beijing.
China launched its $200 billion sovereign wealth fund, China Investment Corp (CIC), only in September, while its big state-owned banks started venturing abroad just recently.
And the timing of their first deals, at what turned out to be the top of the cycle, could hardly have been worse.
Shares in Blackstone Group (BX.N) have shed almost 40 percent percent from the firm's $31 debut price in June. CIC pumped $3 billion into the U.S. private equity giant before its IPO.
China Development Bank, which lends at the direction of the government, spent 2.2 billion euros ($3.14 billion) last July on a 3 percent stake in Barclays (BARC.L). Shares in the British bank have also fallen 40 percent since then.
And Morgan Stanley's (MS.N) share price has fallen about 10 percent since CIC made a $5 billion investment last month.
WOUNDED MORALE
"These are long-term investments so book losses may not be too much to worry about, but it's not good for China's morale as the whole foreign foray has just started," Zuo said.
So it was understandable when Citigroup came knocking at its door that China had second thoughts and chose to err on the side of caution, she added.
Andy Xie, an independent analyst and former Morgan Stanley chief China economist, said Beijing had moved in too hastily when the subprime crisis broke. Officials had learned the lesson and were now more careful.
"It's too early to say whether we're seeing more than the tip of the subprime iceberg. There's still a long way to go," Xie said.
In the case of Citigroup, he said the bank had apparently been unable to soothe Chinese concerns that the lender faced a bumpy road given its surprisingly large subprime write-downs.
"Before the crisis bottoms out, Chinese buyers will be dazzled by countless opportunities," Xie said.
He expects insurance companies as well as banks to be on the prowl for bargains.
Ping An Insurance (Group) Co (601318.SS)(2318.HK) said at the weekend it planned to raise as much as $20 billion and could use the money for acquisitions. The country's second-biggest life insurer has already spent $2.7 billion on a 4.2 percent stake in Dutch-Belgian financial services firm Fortis FOR.AS.
And Wan Feng, the president of China Life Insurance Co (601628.SS)(2628.HK) (LFC.N), said last week that several U.S. financial firms had inquired whether the nation's biggest insurer would like to invest in them.
SUBPRIME WORRIES
Beijing's reluctance to buy into Citigroup coincides with growing expressions of concern by Chinese officials about the seriousness of the credit crisis.
"The subprime loan issue has planted a ticking timebomb in the global financial markets. It now seems the impact is much more serious than the market had previously expected. I don't think it will be over any time soon," Vice-Finance Minister Li Yong said at a recent forum.
China might be new to the game, but it is precisely during times of such turbulence that bold moves are called for, said Zhang Ming, a researcher with the Chinese Academy of Social Sciences, a key government think-tank.
"Nobody is wise enough to know exactly when prices will bottom out," Zhang said. "When the market stabilises, prices will go up, regulatory scrutiny will be tougher and the door for China to invest in Wall Street will have closed," he said.
But Xie said China needs to be more selective as it puts its money to work and should not be seduced by the notion that a famous brand is always a guarantee of profits.
"The best opportunities will come when Americans such as Warren Buffett or the Yale Endowment Fund start to buy. Americans know much more about their own problems than outsiders," he said.
(Reporting by Eadie Chen; Editing by Alan Wheatley)
((eadie.chen@reuters.com; Reuters Messenger: eadie.chen.reuters.com@reuters.net; +8610 6627 1268)) Keywords: CHINA FINANCIAL/BANKS
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