Originally I perceived the recent approval of the Citigroup-led consortium’s purchase of the Guangdong Development Bank, the struggling lender in southern China, as another example of western investors overpaying for an insolvent Chinese bank. The reports published yesterday indicate something quite different.

Citigroup is simply the public face on a revival of Chinese economic nationalism. Like their colleagues in Russia, France, the US and most of the rest of the world, government officials in China are worried about foreigners taking over what they consider national crown jewels. To stop the menace of globalization the Russians have restricted or harassed international oil companies, the French have cobbled together an absurd merger, and the Americans howled at the prospect of Arab investors interests in purchasing port facilities.

The Chinese have grown rich encouraging foreign investors to build an admirable export machine. Competing against Chinese state owned companies on their own turf is something else. Carlyle’s problems purchasing state-owned Xugong, the Chinese machinery maker, and harassment by Chinese government agencies of companies like Procter and Gamble, General Mills, Heinz, KFC, Lipton teas, Colgate-Palmolive and Sony about their products is further evidence that the Chinese government is seeking to control foreigners seeking a piece of Chinese growth.

The purchase of GDB is more of the same. Although trumpeted as a major coup for Citigroup, the proposed purchase is nothing more than one state owned company being sold to another. According to reports in the FT, Citigroup and IBM will own less than a quarter of the GDB. At least another 70% will be owned by nominally public state owned companies like China Life, State Grid, and Citic Trust. Although Citigroup’s 85% share of GDB initially looked as if it could have enough control to actually make necessary changes, the reality is that GDB will be transferred from one branch of the Chinese government to another. Contrary to public perception, this is neither capitalism, reform, or even profitable, just more of the same.

William Gamble

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