Even I can understand why an investor would want to buy the initial offering from Industrial Commercial Bank of China. In relationship systems there are always bouts of speculation. The increased value of previous IPOs of Chinese banks look tempting. If you are fortunate enough to make a profit, holding on to the stock is simply insane.

Superior growth does not always justify a price tag. Just because the economy is growing means that someone is getting rich. It does not imply that foreign investors are getting rich. Loan growth of 18 per cent in certain regions is not a reason to celebrate. It is cause for panic. The problem with loans is that they have to be paid back! Default rates for car loans alone have been as high as a third. There are no credit bureaus.

A recent study estimates the private sector, the most vibrant of the Chinese economy, is as low as 14%. Loans to state owned enterprises tend to rot or end up being traded between the Asset Management Corporations. Since the government, often local government, controls the banks, they can make or stop loans as an instrument of economic policy. The FT reported in July that the China Construction Bank had reduced new loans to "virtually zero". A real problem if 90% of your income is based on lending.

As Lex mentions, fraud is not only a problem. It is a big problem. People are not walking out the door with a measly million. They are stealing tens even hundreds of millions. It is estimated that the big four Chinese banks have lost $1.5 billion in the last three years alone and it is getting worse. Of course without a free local press and a censored foreign press, we really do not know what is happening. Given the size of ICBC, senior management may not know either. Giving these banks huge injections of cash will only mean that it will be misspent, leading to more uncontrolled growth, inefficient allocation, theft and eventually, collapse.

William Gamble

EMERGING MARKET STRATEGIES

Suite 1D

1990 Pawtucket Ave

East Providence, RI 02914

Tel: 401-272-8906;Fax:401-272-8139; Cell 401–829-6729

Internet: xgamble@cs.com

http://www.emergingmarketstrategies.com/