This question has been up in lights again during the debate over the sale of shares in China's big four state banks to foreign investors, starting with China Construction Bank and then the Bank of China.
There is a strong element of farce to aspects of this debate. Only a few short months back, there was much guffawing about the nerve of Chinese leaders to even bring debt-laden dogs like CCB to the international capital markets.
After all, these behemoths were all but bankrupt a few short years ago, and were only afloat because of massive injections of state capital (read: taxpayers' money). Even worse, their government-appointed CEOs had little idea about what was happening in the branch offices, because their computers in Beijing couldn't tell them.
Fast forward a few months to the initial public offering of CCB in late October. The listing goes off like a dream, and a month or so later, CCB's stock is trading well above its opening price.
But far from being a cause of celebration, the dark clouds quickly gather in Beijing in response to this news, with various media and government agencies lobbing bombs at the central bank (effectively, CCB and BOC's owner) and anyone else associated with the successful IPO.
Have Chinese leaders decided that foreigners have been getting too fat and rich at the expense of the motherland, and the "reform and opening" of its economy?
The complaint is similar to the one heard in any form of partial privatization in China, especially where foreigners are doing the buying. And that is: the state assets, essentially the people's patrimony, have been sold off too cheaply.
The complaint has an extra edge in the case of CCB, because the gulf between the price paid by the strategic foreign investors is dwarfed by the price the stock is now trading at.
CCB had gone from being a dog to a darling, and those foreigners looked like they might make a profit in the process! That, said the critics, could not be allowed to happen again, forcing a delay in the approval of new strategic investors in BOC. Let's be frank about this. It is fair enough for Chinese to be worried about the sale of state assets. They only have to look at Russia, or indeed, many small local companies in their own backyard that have been privatized, to see how such sales can easily be translated into theft.
But there are lots of reasons why the foreigners won't be able to cash in on their purchases. Not least is a three-year lock-up period and a host of provisions ensuring that they get involved in the management of the bank.
The key argument undermining criticism of the CCB deal is that the IPO, and all the value it has added to the bank, would never have happened unless the foreigners had bought it in the first place. The foreigners gave CCB global credibility. Likewise, if they sold their shares, that newly won market trust would just as quickly dissipate and CCB could go back to being the dog it once was. And what sort of a victory would that be?
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