Cautious China to miss out on global banks firesale
BEIJING (Reuters) - China has the cash and ambition to be a major player in the world's biggest sale of financial assets in half a century, but politics, a lack of expertise and an aversion to risk will relegate it largely to the sidelines.
Nationalistic worries about how state-owned Chinese firms might behave if they had a controlling stake in a major foreign bank are probably Beijing's biggest obstacle, but there are others almost as daunting.
"Chinese financial institutions are not mature enough to make a large overseas acquisition," said Zhao Xiao, an economics professor at the Beijing University of Science and Technology.
"They must gain experience helping China's thriving manufacturers to move overseas ... and in five years they may be ready," said Zhao.
China's cautious regulators are also reluctant to approve such acquisitions due to volatile markets, recent losses from earlier financial stakes and a lack of experience.
"The Chinese may have that ambition ... but that would just not be allowed," said Glenn Maguire, Hong Kong-based chief Asia economist for Societe Generale.
"Politically, it is very sensitive," said Maguire, pointing to rising protectionist sentiment in the United States in a presidential election year.
China's financial stakes in Morgan Stanley (MS.N) and Blackstone (BX.N) have also soured as the credit crisis has spread, offering painful lessons in market volatility to investors accustomed to uninterrupted double-digit economic growth.
The expertise required in complex takeovers can also be outside the reach of established foreign banks as well.
After Germany's Commerzbank (CBKG.DE) bought investment bank Dresdner Kleinwort for $14.5 billion from Allianz (ALVG.DE) last weekend, it unveiled plans to cut 9,000 jobs.
Commerzbank's shares have fallen 14 percent in response to the deal as the bank said it still needed more cash from shareholders and analysts were skeptical of its ability to turn Dresdner around.
China Development Bank had been seen as a possible candidate to take over Dresdner, though how serious is not known.
For a FACTBOX on China's biggest overseas acquisitions, click ID:PEK172765
MONEY NOT ENOUGH
Political concerns earlier this year prevented Bain Capital and China's Huawei Co. HWT.UL from obtaining U.S. government permission to buy 3Com Corp (COMS.O) for $2.2 billion.
Societe Generale's Maguire said the opportunity to buy assets such as investment bank Lehman Brothers LEH.N may not happen again for decades. Newspapers have reported China's top brokerage CITIC Securities (600030.SS) is also interested in Lehman.
"I don't think it is an exaggeration to call it a 50-year opportunity," said Maguire.
State-controlled Korea Development Bank is in talks with Lehman over a possible joint investment with other Korean banks ID:nSEO69191, but has said it was still unsure whether there would be a deal.
"China's leading banks are massive in terms of market capitalization and assets," said Jing Ulrich, the head of China equities for JPMorgan Securities.
"But their business reach is limited compared to international banks," Ulrich said.
WALK BEFORE RUNNING
China's underdeveloped financial industry lags far behind its booming manufacturing sector, underpinning regulators' cautious sentiment that local financial firms need to demonstrate they can walk domestically before they run overseas.
China's Ping An Insurance (601318.SS) (2318.HK) bought 5 percent of Fortis (FOR.AS), the struggling Belgian-Dutch financial group, for $2.67 billion last year.
But Fortis said earlier this month Chinese authorities had delayed approval of the $3.33 billion sale of half of its asset management arm to Ping An.
"It isn't much of an opportunity if you don't have the ability to carry through," said Gordon Orr, a director at consultancy McKinsey's Shanghai office.
China Development Bank bought a 3.1 percent stake in Britain's Barclays Plc (BARC.L) last year but China's cabinet rejected a request in July to increase that stake when Barclays raised fresh capital.
But firms such as the $200 billion China Investment Corp, the country's sovereign wealth fund, and CDB could still play important funding roles in consortia led by foreign banks.
Perhaps the one sector where China would consider taking a controlling stake is in mineral and commodities, where Chinese firms are eager to snap up assets to fuel its vibrant economy.
"The only area China's wealth fund is likely to take a controlling stake is in directly securing inputs into production," said Societe Generale's Maguire.
(Additional reporting by Simon Rabinovitch; Editing by Anshuman Daga)
