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China Development Bank may face tighter regulation

China Development Bank is fighting a proposed change in policy that would strip the state-owned policy bank of special financing bonds, one of its biggest competitive advantages, Bloomberg reported. China classifies bonds issued by CDB at the same level as sovereign debt, unlike bonds issued by other state-owned banks, meaning banks that buy CDB bonds incur a zero-risk weighting on their balance sheets. The change, proposed by Premier Wen Jiabao’s cabinet, would effectively reclassify CDB as a commercial bank rather than a policy lender. CDB was created in 1994 to support the government’s economic and infrastructure goals, including the construction of the Three Gorges Dam and the financing of some of China’s most successful companies, like Huawei Technologies. The bank had US$687.8 billion of loans on its books at the end of 2010, more than twice as much as the World Bank. CDB is the second-biggest bond issuer in China after the Ministry of Finance and is almost completely financed by bond issues.

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