Add Chinese Capital to List of Exports

China’s main export items sweeping the global market include toys, clothes, stuffed animals, DVD players, and bicycles. Soon, another item may be added to the list: Chinese capital, which is expanding its reach to the world.

The state-owned Industrial and Commercial Bank of China said on October 25 that it agreed to purchase a 20-percent stake in Standard Bank, South Africa’s largest bank, for $5.5 billion. If confirmed, the deal will be China’s largest-ever overseas acquisition deal. It is also a strategic move for the country to secure rich oil and natural resources in Africa, including Nigeria and Sudan.

Prior to that, the CITIC Group of China signed on to a capital partnership agreement, investing $1 billion in Bear Sterns, which is suffering from the subprime meltdown, on October 21, in the U.S. If U.S. financial authorities confirm the agreement, Chinese capital would own a stake in a major U.S. investment bank.

In August, China Development Bank (CDB) invested $2.98 billion in Barclays, a major British bank. The CDB also joined a bid to acquire ABN-AMRO, Holland’s biggest bank, last month, and is considered as a strong candidate for the deal.

China Investment Corp. bought 10 percent of Blackstone, the world’s largest private equity fund, for $3 billion in July, sending shockwaves throughout Wall Street. China Minsheng Banking Corp. also recently said that it agreed to purchase 9.9 percent of the San Francisco-based bank UCBH for $205 million. It is a strategy that the Chinese bank will own some stake in UCBH whose customers are mainly Chinese Americans in San Francisco, to learn America’s retail banking techniques.

China’s global capital export, driven by its banks, is possible because the country has a vast pool of foreign exchange reserves amounting to $1.4 trillion.

Another reason is that Chinese banks have obtained on an enormous amount of money through IPOs. The Industrial and Commercial Bank of China, which raised $21.9 billion through IPOs, has become the world’s largest bank in terms of market capitalization. CITIC Group is also a securities firm that has grown rapidly on the soaring Chinese stock market.

While U.S. and European financial institutions are suffering from a liquidity crunch due to the recent subprime mortgage crisis, China’s investment capacity is increasing thanks to the declining dollar. Under these circumstances, the time could not be better for Chinese capital to extend its reach to the global market.

Financial institutions in the U.S. and Europe also want to establish partnerships with Chinese banks to secure a foothold to enter the Chinese market in the future. When the U.S. political circles criticized the sale of a stake to China, Blackstone argued in response: “The participation of Chinese capital will make it a lot easier for us to do business in China, including acquisition of Chinese companies.”

kong@donga.com