Chinese bank stake in Barclays

Foreign banks have been busy positioning themselves for an opening up of the retail market by buying stakes in Chinese banks, often at huge prices. Now, comes the news that a Chinese bank will, for a change, be buying a stake in a foreign bank.

Barclays Bank of the UK has got two foreign banks, China Development Bank and Temasek of Singapore, to buy its equity so that it gets cash to up its offer in the continued battle for Dutch bank ABN Amro. The immediate objective is to strengthen its bid but one long-term payoff could be access to the Chinese banking market. Caveat: as FT notes, CDB has corporate clients but no retail base. Still, there is something to be said for getting a toehold in the Chinese banking market by having the other guy pay for it! The Chinese banking market, incidentally, is far more restricted than India's with foreign banks still being limited in being able to do local currency lending.

From China's perspective, this is another bold move on the international stage, as Tony Jackson notes in the FT. It brings China a 3.1% stake in Barclays and, if the acquisition goes through, a stake in a Dutch Bank. By agreement, CDB's stake in Barclays cannot rise beyond 10% over the next three years. But after that what happens is anybody's guess.

Following China's purchase of 9.9% stake in the premier US private equity firm Blackstone, China is clearly on the prowl in the international arena. It has huge foreign exchange reserves to play with. How foreign governments react to growing Chinese equity holdings in their companies, especially in sectors such as banking, is hard to tell.