China Banks Learn To Say No To Risky Deals

Mao’s peomAmerican investors hopeful the Chinese government’s deep, wide-open pockets will come to the rescue of ailing U.S. stocks may not be happy to hear this news. From Reuters:

After China’s state-controlled Securities narrowly avoided taking a bath on a proposed investment in the ailing Bear Stearns Cos Inc, the Chinese government is insisting that any major foreign investment by state entities gets approval from the cabinet before a final deal can be reached, according to sources with direct knowledge of the situation.

Even before that, there had been increased nervousness about doing bank deals.

China Construction Bank, one of the country’s Big Four banks, has turned down nearly 30 proposals of possible acquisitions over the past year, including opportunities to buy stakes in troubled U.S. home mortgage lender Countrywide Financial Corp and British bank Northern Rock, the sources said.

…”It’s always a question about how to balance your risk and chance,” said one of the sources with knowledge of the Countrywide proposal that was presented to CCB. “If risks are bigger than the chance to make money, why should we go for it?” he said.

Writing on the Bear Stearns deal, Asia Times guest writer Sebastian Bruck, a strategic consultant, argues China may be growing too cautious, while Business Week’s Sameera Anand examines the majority opinion, i.e., that caution did indeed save China from disaster.

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