Friday, January 14, 2005

Just read an interesting piece on the Chinese wire. Apparently, the PBOC and the MOF is now engaging in a fight over how to recapitalize ICBC, most likely the next bank to go IPO after BOC and CCB. Wait a minute, so you think, well they are probably trying to pass the buck to the next guy right? You would expect that the PBOC, which runs SAFE--China's foreign exchange czar--, would want the MOF to issue bonds to recapitalize, while the MOF would want SAFE to use the foreign exchange reserve to recapitalize. Not so. In fact, they are lobbying the reverse with PBOC lobbying for a forex recapitalization and the MOF fighting for the issuance of a special bond. What??? But that goes against everything we know about the MOF, that they hate increasing the deficit. Why would they voluntarily increase the deficit to bail out a mediocre bank? Yes, they want a piece of the action. They have witnessed how our dear Xie Ping and other PBOC officials all of the sudden found themselves in the powerful position of running two state-owned banks and being courted by an army of foreign investment bankers.

The number crunchers at the MOF certainly would not mind this potential path toward a promotion and lots of wining and dining by foreign investment bankers. Moreover, they can once again set up a dummy company which issues bonds to the banks and buys bank shares with the money. That would not increase the deficit at all, since, like the AMC, the MOF provides an implicit guarantee on the bonds. Well, I hope the folks at the MOF get their way, since it is only fair that they get a part of the IPO action.

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