The world's largest IPO is still a month away, but Ding Qiang is already mapping out his strategy. It's not the money that's the problem -- the veteran Beijing stock investor has more than $300,000 (U.S.) of his own cash waiting at the ready -- but getting the opportunity to spend all of it.
China has been staging a series of progressively larger initial public offerings for its Big Four banks, and the attendant investor frenzy, some would say madness, is escalating in lockstep, conjuring images of the gold rush spawned by the Internet boom.
Hong Kong bank branches have resembled movie theatres on opening night, with lineups queuing out the door as hopeful investors jockey to buy shares. Such is the unabashed confidence in the prospects for these banks that one woman reportedly plowed three times her annual salary into Bank of China's $11.2-billion offering in June. China Merchants Bank, a smaller player, was so overwhelmed by the response to its $2.4-billion IPO this month that retail orders were oversubscribed by nearly 270 times.
Analysts are predicting this demand will reach even greater heights on Oct. 27, when Industrial & Commercial Bank of China launches what is expected to be a $19-billion IPO of its shares, beating the previous record set by Japan's NTT DoCoMo Inc. in 1998.
The febrile activity is easy enough to understand. The Chinese Economic Miracle is in full swing, and making a bet on the country's major banks is seen as one of the easiest ways to ride the wave. These are the institutions, after all, that are lending money to China's burgeoning industrial base, and that help to finance everything from new home purchases to the country's increasing need for foreign acquisitions. If you believe growth will continue at its double-digit clip, and that the country is serious about its privatization plans, the demand for Chinese banks stocks seems perfectly logical.
Lurking behind this infectious enthusiasm, however, is the bigger question of whether China's state-owned banks, riven as they have been by fraud, largesse, and hundreds of billions of dollars worth of bad loans, are stable enough to be foisted onto public shareholders. This is a country, despite its continuing reform efforts, where transparency remains dim, where ascertaining objective financial data can be an exercise in frustration, and where the state keeps a leaden hand even on the so-called "private" companies that have been spun off in the markets.
Few believe that these banks will collapse -- the popular view is that Beijing has too much at stake to let that happen -- or that the failure of one or two would incite an international financial crisis. Yet there are persistent concerns that the banks' well-rooted debt issues could rear their head during a recession and wreak some unanticipated havoc, not just with investors, but with China's increasingly important role in the global economy.
ICBC, because of its sheer size, looms as perhaps the biggest symbol of China's emerging promise.
China has traditionally favoured the Hong Kong stock exchange for IPOs of its state-run businesses, but now, for the first time, it will pursue a simultaneous listing on the Shanghai Stock Exchange, where it will sell about a quarter of ICBC's shares, providing mainland Chinese with a chance to get a piece of the action.
"We're all excited about the news," Mr. Ding said. "The Chinese economy has developed so fast, but until now the mainlanders had no way to enjoy the result of this fast development. But now China is trying to let us share in the economic results."
ICBC is the largest bank in the world's most populous country, with $815-billion in assets spread among about 18,000 branches. To give a sense of the sheer scale of the company, consider this: It has upwards of 150 million customers, or roughly five times the number of people who live in Canada. Analysts have crunched the numbers, and estimate that if demand is as heady as expected, ICBC will boast a market capitalization of around $180-billion. That's good enough for fourth-place worldwide, and about three times the size of Canada's biggest firm, Royal Bank of Canada.
