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Unformatted text preview: eform, some of Chinese JSCBs started to list in the stock market in the 12 Mickensy Global Institute (2006) 研 究 所 年 報 146 1990s, including Shenzhen Development Bank13’s IPO in 1991, Shanghai Pudong Development
Bank’s IPO in 1999, China Minsheng Bank’s IPO in 2000, China Merchants Bank’s IPO in 2002 and
Bank of Communication’s IPO in 2005.
The reform of SOCBs is proceeding step by step: first, dispose the SOCBs’ non-performing
loans; second, reorganize them to be joint-stock limited companies not totally owned by the
government; third, draw domestic and overseas strategic investors; fourth, create initial public
offerings, and improve incentive mechanisms; finally, the government will recoup its investment
and gradually give up owning shares in the banks.
The reform of CCB and BOC has followed this path. After peeling off their NPLs to AMCs
and getting capital replenishment from the government, they were reorganized to be joint-stock
limited companies in 2004. From 2005, Chinese government has allowed strategic pre-IPO foreign
investors in some large banks. Among the investors of China Construction Bank, Bank of America
acquired a 9 percent stake for $3 billion, and Asia Financial Holdings Pte. Ltd., a wholly owned
subsidiary of Singapore-based Temasek Holdings (Private) Ltd., acquired a 5.1 percent stake. The
pre-IPO foreign investors of Bank of China include Deutsche Bank, UBS and Goldmen Sachs. The
foreign strategic investors have brought the new management ideas to these Banks and have
replaced a number of government officials with foreign bankers.
Incorporating strategic investors and listing in the stock markets could improve banks’
ownership structure, replenish capital, standardize the exercise of shareholders’ ownership
r ights, establish a directorate system to evaluate efficiency and responsibility, improve
management’s leadership, strengthen supervisors’ functions, and finally transform the banks into
real market players.
However, the foreign ownership stakes still account for a small share in SOCBs. Besides
SOCBs, China has roughly 120 city commercial banks and joint sharing commercial banks, as well
as more than 30,000 rural and urban credit cooperatives, most of them are still firmly controlled or
influenced by the different levels of government and lack even the most basic components of good
State ownership of banks reduces competition and the pressure on banks to operate on a
commercial, profit-oriented basis. In China, government always appears to be the last resort of
the banks. A large volume of $105 billion has been injected by the government into the banking
system since 1998 to recapitalize banks and $307 billion of NPLs has been transferred at face
value to the state owned asset management companies. These coddle behaviors indicate that
13 Shenzhen Development Bank is the only bank in China that is run by foreign owners and is managed by the American private equity firm Newbridge Capital, which is the largest shareholder with...
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- Spring '14