Two steps forward, one step back

The news from the banking sector in China this week sends mixed messages for the international community. Moody’s pegs Chinese banks at Stable to Positive, a shot in the arm for a sector of Chinese SOE’s that rarely gets much respect. China’s banking industry as a whole rates as “E+” “which is one of the lowest on the agency’s global scale” the article says. While China’s big banks are trying to prepare for international competition as they join the WTO, it is expected that Chinese banks will take a big hit as they try, for the first time, to compete with their international counterparts. China’s ascension to the WTO at the end of this year means that foreign banks can apply to have all the same privileges as domestic banks.A related story mentioned that Chinese banks in Macao had put a hold on the assets of North Korea. This PR move is obviously aimed deflecting some of the international criticism for their (mis)handling of the recent North Korean missile tests. The Chinese are masters at PR and this move is obviously calculated to point to the concrete efforts by the Chinese to move talks with North Korea forward. But sometimes I think the Chinese assume that the rest of the world will automatically make the behind-the-scenes connections that are not always obvious in their political maneuverings. Specifically, how many people are going to read the news about the Macao bank hold and realize that they Chinese are trying to make up for mistakes elsewhere? (The Bush administration, for one, doesn’t get it). But that’s Chinese politics in a nutshell.And finally, with these two relatively positive stories, we come to what should be the coupe de gras for a week of good news for the Chinese Banking Sector—an announcement of reshuffling of top administrators for China’s largest banks. Now, since transparency, a lack of accounting fundamentals, low capital investment and 20% of loans non-performing are the current concerns with Chinese banks, this new administrative shuffle has the potential to be a really positive move, right? As it turns out, the new banking administration will be like the old army joke about everyone getting a new change of underwear—“you change with him, you change with him, you change with him” and so on. That’s right, officials from one bank moved to another and vis versa. Really.Not only does this mean that people, particularly powerful or high position people are more important than an entire industry, but it also shows the degree of involvement that the central government still has in the banking sector. Both of these implications come as these major banks are preparing IPO’s and/or looking for foreign investment and management assistance. Not necessarily a positive move toward transparency.