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Capital Markets

China banks: State bank up for grabs

Persistent rumours are circulating in China that mainland authorities are likely to auction off a controlling interest in state-owned Guangdong Development Bank. Although unconfirmed, if the rumours prove accurate the GDB sale could presage the start of the true privatization of China's banking sector.

Hitherto, sales of shares in government-owned banks have been limited to minority stakes, generally in the largest banks. The current law restricts a single foreign investor to a maximum 20% stake in a Chinese bank and total foreign investment in the sector cannot exceed 25%.

Although GDB is relatively small, its sale is likely to attract strong interest from international private-equity houses as well as foreign banks. If the sale proceeds successfully, the government might be encouraged to put more banking assets on the block. Quite how the government will react if these sales produce the kinds of super-profits earned by private-equity firms from investments in the Korean banking sector is another matter.

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