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Barclays has got game, China the money

Barclays sign

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Kai Ryssdal:There's a big banking deal in the works which, if it wasn't worth almost $100 billion would be temtping to skip over — because banking deals aren't always the sexiest thing in the world. London-based Barclays has gotten itself in a bidding war with the Bank of Scotland over the Dutch group ABN AMRO. There've been the usual offers and counteroffers.

But things took an unusual turn this week when Barclays announced it had a new partner with very deep pockets: the Chinese government. Some Brits find the prospect of Beijing having a stake in one of the U.K.'s biggest banks a net positive. Others, well, don't.

From London, Marketplace's Stephen Beard reports.

Stephen Beard: With China set to buy a $13 billion stake in Barclays, the smart money is on the British bank to win this long-running battle. The rival bidder, a consortium led by the Royal Bank of Scotland, may have been outmaneuvered. And Barclays could benefit in other ways, says fund manager Nicola Horlick.

NICOLA HORLICK: In return, they are going to have access to the Chinese market which is obviously a big prize. So you can understand that they would want to do a deal like that.

And, why the Chinese have been offered a seat on the Barclays board, even though they'll own a stake of less than 10 percent. For the Chinese, it's an even sweeter deal, according to John Wilman, business editor of the Financial Times.

JOHN WILMAN: I think the Chinese see something rather interesting in this relationship. I mean, clearly, it gets in on the ground floor of the largest bank merger in history.

He says it will help them diversify some of their $1.2 trillion worth of reserves out of the ever-depreciating U.S. dollar. And for the Chinese, there's an even more important prize:

WILMAN: I think they are aware that as China opens up to the world they need the sort of expertise they could learn from someone like Barclays.

For all the huge strides that China has made in manufacturing, the country still lags way behind the West in banking know-how, says Duncan Innes-Ker of the Economist Intelligence Unit.

Duncan Innes-Ker: Looking at the sector as a whole it still suffers from a tremendous shortage of skilled and informed personnel. The I.T. side of it needs a lot more development. Risk management is still in the early stages of being developed to international standards.

But 10 years ago the Chinese also lagged way behind the West in manufacturing. Now look at them. There is every possibility, says Innes-Ker, that in a few years the Chinese could become financiers to reckon with. Shanghai and Hong Kong could together begin to rival New York and London.

INNES-KER: The improvement rate is very rapid. So in the future there is no doubt that they will be competing at the highest level. But it will take several years to happen.

The Chinese stake in Barclays in not their first foray into the heart of the Western financial system. Only a few weeks ago, they snapped up a piece of what the communist government in Beijing would in the old days have called "a running dog of capitalism." They bought a large stake in the U.S. private equity firm Blackstone. Now with a piece of Barclays under their belts, this is beginning to look like a shopping expedition, says the F.T.'s John Wilman:

WILMAN: You can almost see them with a shopping list saying it would be good to have a stake in this bit of the banking sector. Private equity. Tick. There's Blackstone. Wholesale banking. Tick. There's Barclays. Oooh and Barclays can also help us raise all sorts of debt finance. There's another tick.

He believes that China is quietly embarking on an equity spending spree. No longer happy to plow its massive cash surpluses into Treasury bonds. It wants a big share of Western businesses and their profits. It has the money to buy them. And very soon it'll have all the necessary financial expertise as well.

In London, this is Stephen Beard for Marketplace.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.
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