Economist story on IPO for China's huge Agricultural Bank, which, BTW, raised about $19B and will end up with $22B when all is said and done--the biggest IPO in history when all the additional possible shares are issued.
The event, says The Economist, "ends a decade-long process to transform China’s huge financial institutions from wards of the state to banks that resemble publicly listed firms in the rich world."
Now that the catch-up has occurred, warns the newspaper,
"success will force the model to change."
So no "Beijing consensus," says The Economist. "Though neat, such a conclusion looks wrongheaded."
Not that Ag Bank's future isn't bright. It has 320m customers and only 1% of them have mortgages, so growth is guaranteed.
And yes, the government could easily loan and spend its way out of the Great Recession by commanding banks to lend like crazy.
But:
Even admirers, though, cannot fail to spot China's bad-debt problem. Those who think capitalist democracies have an unrivaled talent for generating dud loans should consider the Middle Kingdom.
Bad, politically motivated management in the past meant that by the late 1990s, almost a third of all loans in China were to zombie state-run enterprises, thus requiring China to lead the world in bank bailouts for most of the last decade.
The latest binge, as the newspaper calls it, is likely to trigger similar dynamics in the sense of overbuilding capacity. Yes, the gov can afford the hit, but that's mostly because the Chinese save at such a high rate, meaning banks don't need to turn to debt markets.
Real change to the system will come, as always, with success. The more the middle class emerges, the more banks will need to clear up space on balance sheets to loan out money to individuals and small firms, and "The heavy lifting of financing infrastructure and state companies will shift to bond markets."
In the end, China's banking system will not be all that different from the West's.
The concluding argument of the editorial:
China’s banks could then end up looking a lot like banks elsewhere, although the state will still have control. Yet even that could change gradually. At current growth rates China’s banks will need capital injections every few years. The government may tire of these shakedowns—its participation in this year’s equity raisings has been a little grudging—and allow its stake to be diluted instead. And, as China’s banks claim their rightful place among the global leaders, they will find doing big foreign deals is hard when the government has a hand on the steering wheel. The rise of China’s banks is stunning and a little frightening. Yet they are not the pallbearers of market-based finance, just a work in progress.
Beware the bullshit artists who claim China is somehow making a new model of development happen.