As my colleague Lily Kuo reports, Chinese companies are on a European shopping spree, lured by cheap valuations as the European economy staggers. The latest hubbub is about banks. On September 17, China Construction Bank (CCB) Chairman Wang Hongzhang told the Financial Times that his company had set aside RMB 1 billion ($15.8 billion) to acquire a 30%-50% stake in a European bank. If it goes through, it would be the largest-ever overseas transaction by a Chinese financial firm.
But while the news sparked a mix of enthusiasm and trepidation in Europe, the real obstacles could be back at home. “I would be really surprised if they managed to take over a European or US bank,” Rhodium Group Research Director Thilo Hannemann tells Quartz. “There are very strong… domestic [Chinese] hurdles.” All financial deals must still be approved by the Chinese Banking Regulatory Commission, he explains, which normally slows down the acquisition process by two or three months.
China hasn’t had much luck with investments in the financial sector. In 2007, China’s overseas investment fund put $3 billion into American private-equity group Blackstone, only to lose $500 million in six weeks and provoke a popular backlash. The fund also took losses on a similar deal with Morgan Stanley. Regulators have since proved wary about new deals. The Bank of China was forced to rescind a €236 million (then $313 million) offer for stake in La Compagnie Financière Edmond De Rothschild, one of the world’s oldest banking institutions, after a drawn-out regulatory investigation failed to win approval.
Though it may be small consolation to frustrated Chinese investors, such caution gets a thumbs-up from ratings agencies like Standard & Poor’s. “The phenomenal growth in Chinese banks’ overseas assets—of about 176% over the past three years—won’t affect their creditworthiness,” the agency reported (pdf) in July. “Banks are unlikely to expand their overseas operations through aggressive acquisitions. Currently, the banks’ overseas operations constitute well below 10% of their total assets, and offshore profit contributions represent an even smaller portion because of strong domestic profitability.”
Not that such investments won’t happen at all. Chinese banks recognize that they are still playing catch-up with their developed-world colleagues, and are eager to expand their experience and reach. But they’re not yet ready for a full-on invasion.