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Thursday, April 02, 2009

China extends lockup period of foreign banks

Most foreign banks have gotten out already due to the fire at their backyard. But this new policy aims to make foreign banks more committed to Chinese market in the future (source: wsj)

Buying a stake in a Chinese bank certainly isn't easy, but getting out of that stake just got a whole lot harder.

China's banking regulator has said it will extend the lockup period on shares owned by overseas investors to five years, from the current three years.

A move like this will discourage potential sources of capital for China's companies. Even in good times, a five-year lockup period would be a stretch for many investors.

That, of course, may be the point.

This is a further hardening of Chinese attitudes to foreign investors -- in this case, with some justification.

As recently as three years ago, when a number of Western financial institutions first took strategic stakes in Chinese banks, confidence in China's banking sector was seen as a considerable bonus for both sides.

The stakes gave the Chinese banks credibility ahead of initial public offerings, while giving Western banks a way to tap China's potentially lucrative -- and certainly huge -- market.

Four years on, and the ravages of the credit crunch have Western banks exiting their investments with unseemly haste.

That hasn't gone down too well in Beijing. The exiting banks have made tidy profits in the process, while plans for the Western "experts" to share technology and know-how now look like so many other promises made during the heyday of the credit bubble.

So the new message is clear: if you're going to invest in China's banking sector, Beijing's going to see to it that you commit long-term.

Clearly Goldman Sachs got the message -- hence the pains it took last week to focus on its agreement to extend the lock up on 80% of its 5% stake in Industrial & Commercial Bank of China, skirting over its decision to offload the rest of its stake as quickly as it was allowed.

True, it's not as though there's a long queue of foreign financial institutions with cash to invest anywhere, let alone a Chinese bank, right now.

Even if there were, China's not giving foreign banks the red carpet treatment anymore.