Agricultural Bank of China, the last of China’s big state-owned banks to be privatised, has finalised the terms of its forthcoming initial public offering (IPO). AgBank is set to raise $22.1bn in Hong Kong and Shanghai, which would be a global IPO record. Meanwhile, the precarious state of China’s property market is in the spotlight again. Xu Shaoshi, minister of land and resources, said a “comprehensive correction” in the housing market looked probable.
What the commentators said
AgBank not only boasts assets worth more than India’s GDP, but it also has a “supersized price tag”, said Lex in the FT. It is on 1.7 times book value, compared to 0.9 for JP Morgan. But investor enthusiasm for Chinese banks looks overdone. Unlike Western banks, Chinese ones “have yet to pay the price for years of heavy lending”, especially after the “orgy” of government-mandated loans that were central to China’s stimulus package.
One area where careless lending was rampant is the property market. China’s financial regulator recently warned that the credit risk in both the residential and commercial property sectors was increasing. What’s more, air is hissing out of the bubble, with transactions down by 60% across 14 major cities as the government has clamped down on speculation, noted Standard Chartered. Prices have started to ease.
So the danger is that “we’re starting to see a collapse in property” that is “going to hit the banking system”, said Harvard University’s Ken Rogoff. If there is a sharp slide, it will be hard for the government to prop up the market, added Lex, as lending rates are already at their lowest in a decade. So far, the evidence points to “a slowdown rather than a crash”. However, that said, “nerves will be jangling all the same”.