Chinese Barclays deal boosts global ambitions

The move by the state-controlled China Development Bank (CDB) for a £2.5bn stake in Barclays today marks the latest flexing of financial muscles by the Chinese government.

The move by the state-controlled China Development Bank (CDB) for a £2.5bn (€3.7bn) stake in Barclays today marks the latest flexing of financial muscles by the Chinese government.

Richard Hunter, head of equities at stockbroker Hargreaves Lansdown, said that increasing Chinese activity on the global market could have a positive effect on share prices as more money comes into the London market.

He said: “It is a positive that they have changed their investment strategy to become a bit more adventurous.

“If you have a great deal more Chinese money coming over then it is going to have a more positive impact on share prices.”

If Barclays’ bid to buy Dutch bank ABN Amro is successful, the CDB will be the largest shareholder in the combined group with a stake of between 6% and 8% and a total investment of £9bn (€13,4bn) billion.

It can also increase its holding to 10% if it chooses.

The latest example of increasing Chinese assertiveness in global markets follows a government decision in March to drive up financial returns from an estimated $1.2 trillion US (€863.7bn) in foreign exchange reserves languishing in US Treasuries and bonds.

The government’s vehicle – the newly-formed State Investment Company – promptly spent $3bn US (€2.2bn) on a stake in US private equity giant Blackstone.

It has around $200bn (€145bn) to spend so far and will look for other high-return overseas investments.

Blackstone also acted as the transaction adviser on this latest deal between Barclays and the CDB.

A CDB spokesman said the rationale behind the Barclays deal was different as the company was looking to place itself on a more commercial footing not gain higher returns from a broader range of investments such as the SIC.

The bank, founded in 1994, is already the world’s largest development bank with more than €233.4bn of assets, funding projects such as infrastructure, real estate and energy deals.

But its stake in Barclays – its first equity investment outside China – and partnership with the bank will also allow it to use Barclays’ global presence to attract staff from outside China as well as gain from a steady stream of Barclays managers on secondment.

Barclays on the other hand, gets a foothold in China which will increase through ABN’s Asian business if the merger goes ahead.

The two banks – who began discussions over today’s deal in May – have also agreed to refer clients to each other as well as co-operate on the development of new markets and products in the region.