Eye on China: Banking on managing change - slowly but surely

By the looks of things, China's latest bank listing is a resounding success. A whopping US$22 billion ($33.25 billion) was raised by ICBC, the largest Chinese state-owned bank by assets, on both the Hong Kong and the Shanghai markets, with the shares zooming 15 per cent on the first day.

I missed out on making money (I didn't buy shares) on the transaction, because I'm a cynical old hack. I can easily repeat all the usual reasons against believing in ICBC, an absolutely huge government-owned bank, which has historically focused on China's heavy manufacturing base.

For example, the bank is selling only 20 per cent of its shares, thereby ensuring Government control; it's still run by Communist Party members and civil servants; it's arrogant and hostile to private business; and prone to corruption and mismanagement.

Nor should the frenzy that greeted the issue be taken to mean that Hong Kong investors are especially in favour of the bank based on its fundamentals. This year has been a banner year for the Hong Kong Hang Seng Index. It's the highest I've seen it since I started work in China back in 1997.

This had provided the motivation for millions of Hong Kong retail investors to pile into the market and hope they can flip the shares for a quick profit - that's the Hong Kong way. Professional fund managers get a fillip out of this heated-up retail investor market that helps the professionals unload their shares.

And the over-subscription levels (there were US$300 billion worth of institutional orders and almost $60 billion from retail punters for the US$19 billion of stocks on offer) on the stock certainly encourage professional investors to pile in.

Interestingly, no Chinese state bank has felt it can handle listing in the US, deterred by the harsh Sarbanes Oxley corporate governance regime.

Nevertheless, I still have a nagging feeling that I missed out. Partly, it's the immense importance of the banking system to China's economy. China's export industry is world class in many ways, as are many of its domestic industries. The problem has always been how to utilise most effectively the country's US$2 trillion pool of savings. The Government knows this and appears to have gone all out to reform the banks.

It's noticeable in the details: When I was at a small domestic airport in China last month, I tried to use my HSBC ATM card at the local China Construction Bank branch. This failed, but nearby Bank of Communications, which has been listed for almost a year, had a modern machine which accepted my card. So progress is being made through the listing mechanism. This means that if you don't believe in the reform of the banking system, you are giving up on any optimism regarding the country's progress.

Yet time and again, the Government has overcome challenges that skeptics believed it was doomed to fail at: holding the currency steady all these years; surviving the Asian financial crisis almost unscathed; laying off tens of millions of blue collar, state-employed workers without large-scale unrest; creating the biggest telecom market in the world, and other impressive achievements.

As a journalist who has to work with government employees, I am happy to admit an active dislike against the government sector in China. But while they are undeniably using the 'reform' process to enrich themselves on an outrageous scale, this does not prevent wide-ranging macro-economic policies from being passed. And these policies are bringing greater wealth to many Chinese people, at least in the cities.

Clearly, the brutality and cronyism in the system are outweighed by the economic benefits the Government is bringing. I believe such a state of affairs is extremely uncomfortable to Westerners. Our puritan heritage conflates economic progress with things like honesty, sound book-keeping, a respect for contracts, an independent press and so on. Not many of these are present in China - apart from economic progress.

I've also come around to the belief that journalists always stress the darkest side of China because we spend so much time covering change, and change is usually painful and rich in victims.

We share this propensity with the Chinese themselves. Many Chinese are scared of the challenges. They may have a house, a car and a third-generation mobile phone but they are terrified of losing their jobs, not finding the right marriage partner, having to look after their parents and less successful siblings, their physical appearance, and so on. Not unlike, Westerners then, but without the social welfare net.

All this can create the feeling that things are getting worse. Psychologically, perhaps they are. But economists are not much interested in psychology. The numbers say things are improving. Next time a Chinese bank comes for a foreign listing, I'm going to be gunning for those shares.