Saturday, 5 February 2011

Ni Hao, would you like to open an account ?

When Hu Jintao, the leader of China, visited Washington recently, there was a flurry of deals signed. Predictably, most were economic. One tiny deal, lost from the public glare may be far more important than most of the bigger ones signed amidst much fanfare. This was the acquisition by ICBC, the world's most valuable bank from China, of the tiny retail network of the Bank of East Asia in New York and California.

All bank takeovers in the US need regulatory approval. Given the circumstances under which this deal was signed, its expected that it would be approved. And therein lies the breakthrough.

The regulatory approval is given only if the US believes that the regulatory mechanism in the home country of the bank is "sound". This is classical American overreach of dictating to the world. Now if this deal is to be approved, that is a tacit endorsement of China's banking system, which is entirely state controlled and , to even the most neutral of observers, dodgy. America endorsing China's banking system ? Wow !

There is an even more interesting consequence at the China end. It is the placement of the regulatory powers of a China bank's operations, in the hands of the US regulatory authorities. Yes its only a tiny insignificant branch of the giant ICBC. But then America's regulators never stop at its nations shores. For the Communist Party to accept that, takes some doing.

You can see why both the countries chose a tiny insignificant deal to test the way forward. If it had been a large deal in the public glare, you can imagine the howls of protest in the US against letting China in. Equally so , behind closed doors of the Communist Party's politburo, of submitting to any form of regulation by outsiders. Best to wade through this in an insignificant deal. And then slowly inch your way forward.

America and China are learning to tango. Uncomfortably, but out of sheer necessity. Both would rather not do this. But there isn't a choice. So its an awkward dance , trying not to step on each others' toes. A tall order given that neither has learnt the steps and are too proud to practice. It will be nice watching the dance - we from India being the underaged kid, not allowed into the party, but sneaking in to watch the goings on.

The dance may be awkward, but getting customers to walk in to the branch in New York may be more awkward. Can't imagine Joe the Plumber resonate to the sounds of huan ying guang lin (welcome). But then they won't go after those sort. There are enough Chinese Americans in that land. The NBA all star voting has just finished. Guess who the starting centre for the West is ? Yao Ming. Never mind that he has been injured for a long time and won't play, probably for ever.


RamMmm said...

Ha Ha Ha. Compulsions of two economic superpowers that are interdependent on each other. It should be a matter of time before the India kid does a bigger visible acquisition in some other industry, if not banking, in the US. Tata acquiring Jaguar-Land Rover is one, (anyway the parent is British, but the brand is highly visible in the US), but would be interesting see one that impacts the common man in the US.

Anonymous said...

2 trillion dollar cash reserve..poraathunnu ipo american banks vera..hmmm..guess..soon china might buy off non performing american states at cheap rate and extend the reign of dragon

Ramesh said...

@RamMmm - Somehow an Indian company taking over an American company would not be seen as threatening. But if it was a Chinese company, it would be entirely a different story.

@Gils - They can easily buy American states if they so desire. But it would be completely pointless - American states are some of most bankrupt entities on earth; exceeded only by Indian states !

Anonymous said...

Very narrated compulsions of being together.
//America endorsing China's banking system ? Wow !//
How they survived this?

zeno said...

How do you come across such nuggets of information??

Striver said...

America endorsing a Chinese Bank does sound surprising.
Like the Tango part and the proud to practice piece.
What is more amazing is how do you get to such keen insights??

Vishal said...

Well, perfect example of interdependence... it takes such wonderful economic situation to get two heavyweights to dance without learning it... wow! But there is always a danger when an underaged kid is watching - after all he will grow as well and try to make his way to the party! :-)

Too good - Ramesh! :)

Sandhya Sriram said...

the entire saga of washington deals isnt too exiting if you come to look at it.

irrespective of your vennai in the eyes, for the dragon, i always feel that there is definitely the hand of china in funding the terrorism industry in India. China would like to economically control many of the emerging economies and keep them busy otherwise.

Now this deal is a further stretch of their claws further, isnt it.

thanks Ramesh for continously opening our eyes to new perspectives every time.

Ramesh said...

@Ambulisamma - Well, if you need each other, you have to get along ....

@zeno - Read somewhere, that's how. Nothing original.

@Striver - Idle reflections on a Saturday . Now, don't ask me if I have nothing better to do !!!

@Vishal - The underaged kid has to study and work hard - not while away the time playing. Then he can get into the ball.

@Sandhya - No No. China doesn't care about political hegemony elsewhere. You can be democracy, dictatorship, tyranny, monarchy, whatever. They just want to earn money off you. They don't go for terrorism - that's usually a political agenda. Cina has no agenda other than money !

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