those who missed it, the flotation of Industrial & Commercial Bank
of China, the world's biggest, finally got away last week.

The IPO was a great success both with foreign investors, who have
apparently decided that a bet on ICBC is essentially a bet on China's
sustained economic growth and further market reforms.

The flotation raised just over $19bn but the bank is expected to
soon increase its offering to up to $22bn by exercising the so-called
'greenshoe' option to meet extra demand.

The handling and pricing of the IPO has been widely praised and the
15% rise in ICBC's shares in first-day trading in Hong Kong, suggests
that there is plenty of pent-up investor demand from foreign
institutions who were not able to get their hands in the IPO — their
allotment of H shares was subscribed 40 times .

But in Shanghai, where the bank floated simultaneously, the
reception from domestic investors was luke warm and the first-day “pop”
was a disappointing 5%.

The difference in closing share prices shows that it is difficult to
arbitrage ICBC — or any other big China play with dual domestic and
foreign listings — because of the capital restrictions on foreign
institutions operating in China's domestic exchanges.

The facts and figures behind flotation were dutifully repeated by
foreign media and some 'papers sought to put their own particular spin
on the story.

Canada's Globe and Mail boasted that two Canadian banks
, Royal Bank of Canada and Bank of Montreal, had participated in ICBC's
institutional tranche. The banks hope their participation will act as a
springboard for future deals in the PRC.

For the Australian, the relatively poor performance
of the Shanghai-listed shares shows that domestic investors see the
government's talk of reform and openness as mere window-dressing. They
are wary about investing in China's state-controlled companies while
the mainland continues to lag HK in areas such as transparency,
accountability and legal independence.

In addition, local investors know that ICBC, and other local banks, have a long way to go
to match the level of services and products offered by global banks.
Peng Yunliang, an analyst at Shanghai Securities, told the AP agency :

Just go to ICBC to try to withdraw some money and you will
understand better why it is hard to be quite optimistic about the
ICBC's performance in the stock market.”

AFX was also critical,
saying that China still faces a “formidable challenge” as it seeks to
modernise its financial system despite the successful listing of its
biggest lender.

Poor management and a lack of transparency remain endemic, and
although three of the country's largest banks are now traded overseas,
there is still the problem of what to do with the other big bank — the
Agricultural Bank of China.

ABC's non-performing loan ratio of almost 25% is three times that of China's commercial banks as a whole.

Bad loans at ICBC were 34% back in 2000 but dropped to just over 4% prior to its flotation.

The Hindu News described the IPO of ICBC as a milestone but warned that China's Shanghai exchange would compete with the Bombay stock exchange in attracting foreign investment.

The oddest article
was in the Sunday Times, which in its determination to come up with a
new angle, said the flotation represented a “decisive shift back toward
state intervention.”

Because the state will retain majority control over ICBC, this type
of partial privatisation represents a new model for the way China's new
rulers see the future, the UK weekly argues.

I think the ST missed the news that the ICBC flotation is already
the world's largest IPO. Much larger, and the markets would have had
severe indigestion. So its disingenuous to complain that only 15% of
the bank's equity was floated on the HK and Shanghai exchanges.

Besides, governments — in the east or west — have often opted for
a partial privatisations rather than a “Big Bang” approach when it
comes to selling their plumpest assets. France, for example, only
privatised 20% of France Telecom in 1997 and while it has sold off
successive tranches, its stake is still around 50%.

Of the state-owned banks that have listed shares in HK since last
year, Bank of Communications is now trading 137% above its float price,
China Construction Bank is up 55% and Bank of China is up 15%.

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