Say what now?

The most exciting news that comes out of party congresses tends to be some variation of the game “break the communist code” (sarcasm only partially intended, I find this stuff endlessly interesting). This suddenly changed on Tuesday, when a casual statement by CBRC Vice-Chairman Jiang Dingzhi led to, I imagine,a pile of 1940s style reporters all fighting to get into the phone bank.

The news I am talking about is the revelation that CITIC’s bid for Bear Stearns is more than just an idle rumor. Jiang let this cat out of the bag while talking about Chinese Financial institutions new acquisition habits, also mentioning:

– Industrial & Commercial Bank of China bought 90 percent of PT Bank Halim Indonesia last December.

– Bank of China paid $965 million last December for Singapore Aircraft Leasing Enterprise Pte Ltd.

– In July, China Development Bank, which lends at the direction of the government, bought a 3.1 percent stake in Barclays Plc for 2.2 billion euros ($3.1 billion).

– China Minsheng Banking Corp said this month it will buy 9.9 percent of San Francisco-based UCBH Holdings for more than $200 million in the first investment by a mainland Chinese commercial bank in a U.S. bank.

Of course all that is not nearly as exciting.

What’s particularly impressive of the Bear Stearns story is how it manages to combine everyone’s favorite financial news subjects into one tight package.

A. The sub-prime mortgage crisis (which is why Bear Stearns needs all this money)

B. Hedge funds (who lost all this money in the sub-prime bit)

C. breaking into the Chinese market (which Bear would do if it got this deal)

D. The Chinese taking over the world (Chinese companies buying US companies, shouldn’t congress get involved!)

E. Communism (Including pictures of hideously ugly Deng Xiaoping)

The story is obviously newsworthy. Rumors have been flying about who might end up buying the Wall Street brokerage, and its important if a Chinese regulator substantiates the rumors - even if CITIC says that there has been “no substantial progress,” or that they are not interested in buying the brokerage… for at least three months. I mean people have been really crazy trying to figure out the fate of the poor brokerage who trusted people’s mortgage paying ability.

I was particularly lucky that this news came out on Tuesday, because I was just about to write a piece on financial institutions purchasing abroad. So for the exciting speculation of all the analysts I’ve spoken to you’ll have to wait a few weeks till next month’s issue comes out. For irresponsible speculation from financial journalists I thought I’d point to my last month’s article:

“the government announced that it would soon end a moratorium on foreign investment in securities firms, which would allow foreign banks to receive investment banking licenses in China.”

Chinese securities firms are a bit frightened at the moment of big Western investment banks going on an acquisition frenzy when they enter the market, swallowing up the relatively amateur Chinese firms. During M&A periods companies often take on a “acquire or be acquired” attitude, and Chinese companies still face the burden of proof though as to their capacity as international player.

Whether or not the CITIC - Stearns deal is just media hype seems besides the point. Or better put, the media hype is the point. If a minor league baseball player is brought to the major leagues it doesn’t matter if he strikes out his first game, he still gets paid more just for playing on a bigger field.

Bradley Gardner