Chinese Banks Becoming Powerful Factor in the Global Financial Sector
Drafted By: Adam Wolfe
On October 25, Industrial and Commercial Bank of China (I.C.B.C.), the world's largest bank by market capitalization, announced that it would purchase a 20 percent stake in Standard Bank, South Africa's largest bank. If the US$5.6 billion deal is approved, it will be the largest foreign direct investment in South Africa since the end of apartheid in 1994 and the biggest overseas investment by a mainland Chinese company.
Altering its Approach to Africa
The deal is a logical extension of China's shifting approach to Africa, which PINR first outlined in February, but it also demonstrates the growing power of China's banking sector. Until recently, most observers have focused on the bad debt held by Chinese banks, in addition to the lack of internal controls. However, with some strategic help from the Chinese Communist Party (C.C.P.), China's banking sector appears posed to grow into a powerful factor in the global financial sector. [See: "China Adjusts its Approach in Africa"]
Whereas China remains primarily interested in securing access to Africa's natural resources for its growing economy, this year has marked an evolution to the arrangement in which China increasingly involves itself in African politics in order to foster a better business relationship.
There's good news and bad news here. The good news is China is integrating itself into the world financial system. The bad news is its another sign of the relative decline of American power in this sector, and money that will not be invested in American treasury bonds. Have the Party and the banks come to the conclusion that investing in US bonds is a bad deal? That would have all sorts of consequences for the American economy, budget deficits, and taxes. Who knows--we might even have to pay more of the price of empire. And that may not be so bad after all.