China may buy up to $50 billion in IMF bonds

By Staff Writers

China's ICBC to buy 70 per cent of BEA's Canadian arm
China's ICBC to buy 70 per cent of BEA's Canadian arm

The Industrial and Commercial Bank of China (ICBC), the country's largest lender by total assets, has announced a deal to acquire 70 percent of Bank of East Asia's Canadian unit for 73 million dollars. Bank of East Asia (BEA) will have the option to sell the remaining 30 percent stake to ICBC one year after the transaction is completed, the Chinese bank said in a statement posted on its website Wednesday. Separately, BEA will buy from ICBC 75 percent of ICEA, a joint venture between the two banks, for 48 million dollars, therefore making it a wholly owned subsidiary of the Hong Kong lender, according to the statement.

"The acquisition of 70-percent interest in BEA Canada will enable ICBC to establish its banking business and customer base in Canada, which will provide a strong platform to further expand our businesses and network across North America," ICBC chairman Jiang Jianqing said in the statement. "At the same time, the sale of ICEA will help streamline our organisational structure and business integration in Hong Kong by allowing full resource dedication on our Hong Kong investment banking business," he said.

The deals are pending approval from regulators in China, Hong Kong and Canada, the statement added. Beijing-based ICBC has been active in its overseas acquisitions since it purchased controlling stakes in Indonesia's Halim Bank in December 2006 and Macau's Seng Heng Bank in August 2007. Last year, it acquired a 20-percent stake in South Africa's Standard Bank, the largest lender in Africa. State media reported last month that ICBC was eyeing more foreign targets, including troubled US banks, and could make more acquisitions later this year.

BEIJING — China said on June 5th, 2009 it could invest up to 50 billion dollars in the International Monetary Fund's first-ever bonds, state media reported, in yet another sign of the nation's growing financial muscle.

"If the IMF bonds meet our requirements in terms of safety and return on investment, we will actively consider buying up to 50 billion dollars of bonds," an unnamed official said, according to the Xinhua news agency.

"China has consistently worked to further the Fund's attempts to boost its financing via the market," said the official from China's State Administration of Foreign Exchange.

The 185-nation IMF is struggling to provide financing to countries in trouble amid the global financial and economic crisis.

It has been working to issue its very first bonds, and major developing economies such as Brazil, Russia, India and China — known collectively as the BRIC countries — are seen as potential buyers.

The IMF said last week that Russia intended to buy up to 10 billion dollars in the multilateral institution's bonds.

China's forex reserves are the largest in the world and currently stand at about 1.9 trillion dollars.

"China may actually have wanted to buy even more but the IMF did not necessarily want China to buy more at this stage," said Chen Xingdong, chief China economist with BNP Paribas in Beijing.

"Whether you like it or not, it's difficult to change the structure of investments for its massive forex reserves in short term. There are not many options better than the US Treasuries, but IMF debt is a good alternative."

It had been rumoured for several months that China could make a major contribution to the IMF.

In April, British Prime Minister Gordon Brown told reporters that China had pledged 40 billion dollars to international financial institutions, Xinhua reported earlier.

Brown at the same time also said that China deserved greater influence at the IMF.

Any bid by China to expand its formal influence at the IMF is likely to encounter resistance, especially from Europe, which has traditionally supplied the fund's director general.

Buying a substantial amount of bonds could be the first step on the way towards expanding China's clout at the IMF, according to observers.

"It will help, although not significantly. But of course, China needs to seize all the opportunities emerging from this crisis," said Chen of BNP Paribas.

Meanwhile, East Asia's other giant, Japan, with one trillion dollars in forex reserves, has also boosted its support of the IMF.

Japan signed an agreement in February on the terms of a loan of up to 100 billion dollars to the IMF to provide financial lifelines to crisis-hit emerging countries.

Japanese Prime Minister Taro Aso had announced in November last year that Japan was prepared to provide supplementary funding to the IMF to help contain the current global crisis.

5 June 2009 — Return to cover.