The world’s largest bank by market value, government-owned Industrial & Commercial Bank of China, has purchased an American bank, according to DailyFinance.com. Fortis Securities, a unit of France’s BNP Paribas, has a small presence in the U.S. financial sector. The bank does business in Texas, Colorado, New York, New Jersey, and Massachusetts. Fortis only has 75 customers and a balance sheet of $10 billion. The bank has even been renamed–ICBC Financial Services–to reflect new ownership.
Joseph Spillane, CEO of the old and new bank, says this acquisition will make China an entry-level player in the United States’ banking system. He expects ICBC to make around $15 million in annual profits.
Now that China is directly investing in U.S. financial capital, the face of the global economy may be changing, especially if more Chinese investors get on board. Here’s how China will start reaping the benefits of new investments.
Now is the perfect time to start investing in a bank, especially if you are a large corporation. Loans have been tightened due to foreclosures and losing money is going to be less of a problem as of right now. Banks may make money more slowly than before, but their investments are going to be less risky.
Buying a bank and keeping it operating is better than closing a bank altogether. If Fortis had shuttered instead of being bought, those 75 customers would be out of luck in terms of financing.
China is a growing economy and it only makes sense for them to have a larger and more diversified stake in the global stage. China is expected to overtake Japan as the world’s second-largest economy and become the world’s largest exporter over Germany in 2010, according to NPR.
Part of that factor is a huge population (i.e. labor force) and many factories. Despite this, China still sees itself as a growing nation and not a superpower, with large populations living impoverished and many outlying areas still undeveloped.
The Chinese economy already has its “Made in China” label on 80 percent of Wal-Mart’s products. Ten years from now, we may see “Made in China” on our loan applications for mortgages.
Is that a bad thing? No, because we live in a global economy and everyone is dependent upon everyone else. There’s no getting around it, as we’ve seen in the global economic downturn. Will China become the next AIG? Not for a while, but you can bet that Chinese financial assets will become too big to fail.
Collins, Hugh, “China’s ICBC Buys Fortis U.S. Unit for $1”, DailyFinance.com.
Kuhn, Anthony, “As China’s Stature Grows, Is It Superpower Or Not?”, NPR.org.