China Construction Bank obeys goverment command to lose money
This entry was posted on 8/23/2006 9:00 AM and is filed under Chinese Equity Investments.
If anyone doubt the wisdom of avoiding state owned Chinese companies, they need only to consider the action by China Construction Bank (CC
this week. The Chinese government is trying to slow down an overheated economy. Their financial system lacks the sophistication and controls available to most central bankers or to put it another way, their economy has been designed in such a way that utilization of normal economic tools may not work. So the Chinese government has fallen back on commands and directives.
The best example is CCB. In the first quarter of this year CCB lent $30bn; more than for the whole of 2005. But Santa Claus turned into Scrooge in July. It was reported by a Chinese financial newspaper on August 16th that CCB had reduced its new loans to "virtually zero" in July. Since 90% of CCB’s income comes from new loans, CCB’s income has now been reduced to "virtually zero."
Any doubts that Chinese state owned companies are managed for political objectives rather than profits should be laid in a very shallow grave.
William Gamble
EMERGING MARKET STRATEGIES
Suite 1D
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Tel: 401-272-8906;Fax:401-272-8139; Cell 401–829-6729
Internet: xgamble@cs.com
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