China Construction Bank (HKG: 0939) shares are up 5.5% in Hong Kong today. CCB is also the heaviest trade in the Hong Kong market today, well over $3 billion (HKD) in turnover. The issue is really whether this is a sign of what the Mainland Government is going to do with respect to the property industry. As we’ve seen with both China Evergrande and also Country Garden, something is going to have to happen.
One thing that could be done is simply allow everyone to go bust and clean up later. In economic terms that might well be best too. But it’s almost certainly politically impossible. So, the next question becomes what is government going to do? And there’s a thought that we now have an insight into that: “CCB (00939.HK) announced that Central Huijin Investment Limited, the controlling shareholder of the Bank, had increased its shareholding by 18.3799 million A shares of the Bank through the trading system of the Shanghai Stock Exchange on 11 October 2023.”
The thing is it’s not just CCB: “China’s state-owned Central Huijin Investment Ltd. has doubled down on its investments in Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp., and Industrial and Commercial Bank of China Ltd. These “Big Four” banks confirmed the news. Additional share purchases are expected.”
China Construction Bank share price from Google Finance
So, we’re seeing the state investment fund upping its stakes in large scale banks. The problem now is that this isn’t definitive as to what the next stage of the policy is going to be. Buying more shares doesn’t change the finances of the bank of course, but could signal support for any capital raise that might be necessary.
OK - but that capital raise, if it happens. Will that be so that the banks can support the property companies with write offs and more lending? Or could it be to prop up the bank balance sheets to allow the developers to go bust and default on loans to the banks? We don’t know and given the way Chinese politics works we won’t know until it actually happens.
Boosting state ownership of banks could well be a precursor to action on the property sector. But which action?
