The wave of foreign investment into China’s banking system has aspects of a gold rush. Foreign banks are staking out territory in promising but highly uncertain terrain. Last week Royal Bank of Scotland and its partners Merrill Lynch and Li Ka-shing became the latest to put down a sackful of dollars: $3.1bn for 10 per cent of Bank of China.
Shareholders generally look askance at such “strategic investments” – preferring that companies either acquire target businesses outright or do not invest in them at all. Those buying stakes in China plead special circumstances, with some justification. Nonetheless, there is clearly a risk that their capital will be squandered by managements better known for growing loans than for controlling bad debts.