China turns to capitalism to bailout bank

[ben_meyers]

China Caps Bank Overhaul With $19 Billion for Agricultural Bank

The bailout completes a decade-long, $500 billion-effort to reorganize China's banking industry after years of state-directed lending caused bad debts to balloon. Unlike competitors such as Industrial & Commercial Bank of China Ltd., which sold stock when economic growth was quickening, Agricultural Bank's overhaul comes as the global credit crunch saps demand for China's exports.

``This culminates years and hundreds of billions of dollars of backstopping of China's banking industry,'' said David Liao, who helps manage $975 million at HSBC Jintrust Fund Management Co. in Shanghai. ``From now on, Chinese banks are supposed to walk on their own and the current economic downturn gives them the opportunity to prove themselves in terms of risk management and internal controls.''

Agricultural Bank, founded in 1979 to serve the nation's 800 million farmers, plans to sell stakes to cornerstone investors before going public, following a template used by ICBC, China Construction Bank Corp. and Bank of China Ltd. The nation's three largest lenders received a combined $60 billion in capital injections before raising $43 billion selling shares in the past two years.

I find it bit ironic that China is loosening government controls while Europe and the US increase them. Maybe there is a middle ground after all.