China’s financial sector is in the throes of yet another corruption purge
Save time by listening to our audio articles as you multitaskThe bank has been at the forefront of China’s economic transformation. The southern manufacturing hub of Shenzhen, where it is based, virtually sprang up around it from the late 1980s onwards. Its revolutionary founder, Yuan Geng, also launched some of China’s earliest economic reforms. It lent to private entrepreneurs, while clunky state banks preferred mainly to lend to other state entities.
Such advantages were not lost on investors. China Merchants Bank’s market capitalisation soared, reaching about $230bn in May last year. At that time it was one of the largest banks in the world, behind only JPMorgan Chase and Bank of America in the West. Most big Chinese state lenders are considered inefficient allocators of capital and, as a result, trade at much lower price-to-book-value ratios.
The incident has rocked China Merchants Bank’s share price, which is now 29% below its peak last year. By April 21st its market capitalisation had fallen to $162bn, placing it behind three of its state-owned rivals. More worrying are the long-term implications for the bank’s operations. Mr Tian had run China Merchants Bank since 2013.
China Merchants Bank had so far avoided a high-level scandal. If a graft investigation spreads through the bank, it may end up looking more like other troubled, inefficient lenders in China. Recruiting investors will be that much harder.
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