31 August, 2015

China Bank Mergers & Acquisitions (China Construction Bank)

Photo: A China Construction Bank's branch in Hong Kong.

China Construction Bank (中國建設銀行, 中国建设银行)

The modern history of China started out tumultuously when Imperial China was overthrown in 1911 and the Republic of China was created.  However, opposing ideologies soon led to a civil war that was fought intermittently between the Kuomintang (Nationalists) and the Communists from 1927 to 1937, when both fractions oddly joined forces to fight the Japanese invasion, which became part of the World War II.  Sadly, when China emerged as one of the victor-nations at the end of global conflict, the civil war resumed in 1946 until 1950, when the Kuomintang government’s Republic of China retreated to Taiwan, leaving mainland China to the Communists, who had established the People’s Republic of China one year earlier in 1949.

As part of the Communist China’s state economic plans, the People's Construction Bank of China was established in 1954 as a wholly state-owned financing agency under the direction of the Ministry of Finance to administer and disburse government funds for the construction of infrastructure-related projects. 

In 1979, under China’s new ‘open-door’ policy to modernize its economy and to promote manufacturing and foreign trade, the People's Construction Bank of China became a financial institution under the direction of the State Council and gradually assumed more commercial banking functions that are typically associated with the Western-capitalist definition of a bank.

Throughout the 1980s, China Construction Bank gradually became a full-service bank, offering more and more personal banking services for individuals while maintaining its other mandate of financing state-planned infrastructure development.  This finally changed in 1994 when state-policy-driven, infrastructure-related financing functions were transferred to the newly-created China Development Bank.

In 1996, the People’s Construction Bank of China was renamed China Construction Bank.  By this time, China had been gradually transforming itself from a pure communist state to what it described as the Chinese-style Socialism: basically a form of socio-political system that is roughly half-way between the 1950s hard line communism and the Western capitalist democracy.  Under this Chinese-style socialist market-economy is a system that is still largely state-planned and controlled, but with a semi-market-driven decision-making process; goods and services are largely produced by state-owned enterprises yet with partial private investment and ownership.  Increasingly, individuals are allowed and even encouraged to own personal properties, assets and investments. Yet, unlike the Western capitalist democratic system, universal suffrage is not allowed.

China Construction Bank became a joint-stock commercial bank with limited liability in September 2004 as China prepared to partially float its Big Four state-owned commercial banks on the stock market. To bring the bank’s Tier 1 capital level to the internationally-accepted level of 8%, the Chinese government is said to have injected USD $22.5-billion into China Construction Bank in 2003.  Meanwhile, ownership of China Construction Bank and other major state-owned banks and financial services firms was transferred to a state agency called Central Huijin Investment Ltd.

As China was still inexperienced in managing its own stock exchange, securities underwriting and regulation, essentially all of China’s major state-owned enterprises were initially floated on the Hong Kong stock exchange instead of a Chinese stock market during the early 2000s. 

Following a HKD $71.5-billion (USD $9.2-billion) stock sale, China Construction Bank's class ‘H’ shares were listed on Hong Kong Stock Exchange on 2015-10-27, and on 2007-09-25, the bank's class ‘A’ were listed on Shanghai Stock Exchange, raising another CNY 58-billion (USD $7.7-billion).

Recent transaction(s):
  • In 2006, China Construction Bank bought Bank of America's Hong Kong retail banking operations for HKD $9.7-billion (USD $1.25-billion).
  • In November 2014, CCB bought 72% of Brazil’s Banco Industrial e Comercial S.A. (BicBanco) for USD $723-million (BRL 1.62-billion).  BicBanco specialized in lending to medium-sized businesses through 38 branches in Brazil and one in the Cayman Islands.  The bank had 900 employees.

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