Buying into China

Alisa Roth Jun 1, 2006

KAI RYSSDAL: From the ridiculous to the sublime in the land of IPOs now. The hottest stock in the world today trades under the ticker symbol BOF. Sadly for US investors it trades in Hong Kong. Shares in the Bank of China jumped 15 percent in its first day of trading today. Brought the bank a whopping $9.7 billion. You might say Chinese banks have had some corruption problems. And they’re still tied up with the government in Beijing. So what’s the attraction? From New York, Marketplace’s Alisa Roth has that story.

ALISA ROTH: Chinese banks have a reputation for being corrupt and for not being transparent. In recent years, at least, that hasn’t deterred investors. But China’s still been trying to get itself in line with international banking standards.

Consultant Daniel Rosen says the clean-up efforts are a good start. But that’s not what’s drawing investors to IPOs like this one. What they’re buying into is China’s potential:

DANIEL ROSEN: They’re buying exposure to China. Just based on the fundamentals and the economy, the demographics, the urbanization, the extraordinary growth rates that have been taking place for such a long period of time . . . if you’re buying exposure to that, if that’s what you think you’re doing, you’re making a pretty reasonable bet.

Rosen says, among other things, an expanding middle class means a whole new market for products like banking services, portfolio management and insurance. Barry Naughton teaches international relations at the University of California, San Diego. He worries the cash raised by the Bank of China’s IPO may end up too much of a good thing.

BARRY NAUGHTON: Having so much money might turn out to be a kind of a curse in disguise. They’ve done well bc they’ve been under great pressure lately, and I worry that if the pressure is released that their performance might suffer.

He says so much money lying around could make the bank lax. He worries a lack of financial discipline means money will get wasted on bad loans and other poor decisions.

That’s hardly on the minds of investors. Some analysts say the Bank of China’s IPO could end up raising more than $11 billion.

In New York, I’m Alisa Roth for Marketplace.

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