There were a number of articles that united the themes of China, money, and investment that caught my eye this morning. In the first, Keith Bradsher, writing in the New York Times, suggests that China may be losing its appetite for investing in U. S. securities:
HONG KONG — China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.
The declining Chinese appetite for United States debt, apparent in a series of hints from Chinese policy makers over the last two weeks, with official statistics due for release in the next few days, comes at an inconvenient time.
On Tuesday, President-elect Barack Obama predicted the possibility of trillion-dollar deficits “for years to come,” even after an $800 billion stimulus package. Normally, China would be the most avid taker of the debt required to pay for those deficits, mainly short-term Treasuries, which are government i.o.u.’s.
I note in passing that while Mr. Bradsher points out that U. S. Treasuries constitute a very substantial portion of China’s total investments he doesn’t similarly point out that Chinese holdings of U. S. debt are a relatively small fraction of the whole (most of our public debt is owed to ourselves).
In some sense China’s purchases of US debt has to fall from its current level, as the current level of purchases is unsustainable in a context where China’s reserve growth seems to have slowed. The TIC data show a $44.4b increase in China’s US holdings in September and a $67.5b increase in October, with nearly all the increase coming from the rise in China’s short-term Treasury holdings.
That said, the available data from US suggests that China has yet to lose its appetite for either dollars or Treasuries, despite all the talk coming out of China.
He has the charts and graphs to prove it.
In another tangentially related story the Royal Bank of Scotland may follow UBS’s lead and sell some of its shares in the Bank of China:
Jan. 8 (Bloomberg) — Royal Bank of Scotland Group Plc said it’s considering joining UBS AG and Hong Kong billionaire Li Ka- shing in selling Bank of China Ltd. shares as the end of a three-year lockup gives the U.K. lender a chance to raise funds.
RBS, the biggest bank to be controlled by the U.K. government after a 20 billion-pound ($30 billion) bailout, said it is “examining” its $2.8 billion Bank of China stake as part of a companywide review initiated last quarter. Bank of China, the country’s third-largest lender, fell 7.9 percent in Hong Kong after Li sold 2 billion shares in the Beijing-based company.
The reason for both things, i.e. that China isn’t buying U. S. Treasuries as fast as it was at one point and that RBS may be selling its shares in BOC, is the same: the money is needed for other things. Sometimes a cigar is just a cigar.
Incidentally, China opened its banking industry to foreign ownership under the obligations it undertook when it joined the WTO and the foreign ownership is mostly pretty recent, indeed, much of it since 2006. Foreign ownership has been a good thing for Chinese banks, increasing transparency and reinforcing the move from a policy orientation to a business orientation. Although the recent sales of shares in Chinese banks don’t represent an enormous amount of money, they do represent a sizeable portion of the foreign ownership of Chinese banks.
Below the fold I’ve put a table showing foreign stakes in Chinese banks.
|Foreign Stakes in Chinese Banks|
Foreign Strategic Investors
|State-Owned Commercial Banks||
|Industrial and Commercial Bank of China||
Goldman Sachs holds 4.93%
Allianz holds 1.93%
American Express holds 0.38%
|Bank of China||
Royal Bank of Scotland holds 8.25%
UBS holds 1.33%
Asian Development Bank holds 0.2%
|China Construction Bank||
Bank of America holds 19.13%
|Bank of Communications||
HSBC holds 18.6%
|Joint-Stock Commercial Banks||
|China Merchants Bank||
BBVA holds 4.83%
|Shanghai Pudong Development Bank||
Citigroup (CITIBank Overseas
Investment Corporation) holds 3.78%
Hang Seng Bank holds 12.78%
|China Minsheng Bank||
|Shenzhen Development Bank||
Newbridge Asia AIV III
(controlling entity) holds 16.76%
|Hua Xia Bank||
Deutsche Bank holds 11.27%
|City Commercial Banks||
ING holds 16.07%
BNP holds 12.61%
CCBC Singapore holds 10%