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In China, Cash Carries the Weight
Because credit cards in China have low limits and few stores take them, they are more popular as fashion statements than financial tools.
(By Ng Han Guan -- Associated Press)
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Taking ICBC public was supposed to be part of China's transition to a free-market economy. But analysts say investors are throwing money at Chinese banks for an opposite reason: support of the Communist government, with investors calculating that the government won't let the country's flagship banks fail. "It's a bet on China," May said.
Kroeber backed that up. "There is an implicit message: If things get really bad, the government would come in," he said.
Moody's estimates that China has poured $432 billion into bailing out state-owned banks. Recapitalizing the Agricultural Bank and the China Everbright Bank may cost $150 billion more.
Wang acknowledges that excessive dependence on the government is not a sustainable strategy, because it means the banks won't innovate. "They don't have any motive to create new financial products," Wang said. "This is a big difference between China's banks and multinationals."
As the Chinese government opens its banking sector to more foreign competition, there's a recognition that China's citizens will turn elsewhere for banking. This year, China's government for the first time allowed foreign banks to take local currency deposits and offer yuan-denominated credit cards.
Wang said that in the future, China would inevitably have to cut the banks loose to fend for themselves.
Staff researcher Crissie Ding contributed to this report.
