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Chinese cautious about bottom-fishing for banks

One of the curiosities of the financial meltdown has been the conspicuous absence of China’s leading commercial banks and brokerages in picking up bargains from the wreckage.

Beijing’s best banks are snapping up emerging market lenders left, right and centre, and have long coveted access to developed markets in Europe and North America. So why are they nowhere to be seen?

In truth, many Chinese lenders see the credit crunch-cum-catastrophe as reason to err on the side of caution, rather than to seize undervalued foreign banking assets. A few Sino-foreign deals have been signed in recent months. In May 2007, Beijing’s newly formed sovereign wealth fund, China Investment Corp, bought a 10% stake in US buyout group Blackstone. Two months later, Barclays sold a 2.64% stake to China Development Bank, the country’s leading policy lender. CIC ended the year by cutting a much larger deal, buying 9.9% of troubled Morgan Stanley for $5 billion.

But CIC will feel that it hasn’t come out well from many of those deals. Sources close to the fund say the government was irked at buying stock in Blackstone before its initial public offering, only for the firm’s stock to sink quickly below its issue price. The stake in Morgan Stanley – seen as a better long-term bet by the Beijing government – has also proved, in the short term, a bit of a stinker.

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