China's banks need to raise $90 billion in capital through 2011

02/25/2010 2:50 pm EST


Jim Jubak

Founder and Editor,

That’s a bit of a headwind.

This week China’s big state-controlled banks announced plans to raise $11 billion through stock and bond sales to meet new capital requirements set by the country’s bank regulators.

For example, Bank of China (BACHY.PK) has announced plans for a $6 billion convertible bond offering.

Deals like that are just the first installment, however.

China’s big banks have another $22 billion in stock and bond sales in the pipeline. To keep with my previous example, in March Bank of China will ask regulators for permission to raise almost $30 billion

And that’s not the end of it. Chinese banks will have to raise at least $40 billion on the Shanghai stock market and $20 billion on the Hong Kong market by the end of 2011, Guotai Junan Securities estimates, according to the Financial Times.

All the money that China’s big banks need to raise by selling stocks and bonds means that there’s less cash available to fuel appreciation in the rest of China’s market.

IPOs (initial public offerings of stock) will be the sector that feels the competition most directly. It certainly hasn’t helped that recent big Chinese IPOs haven’t lived up to expectations for huge gains on the first day of trading. XD Electric, for example, fell 2% on its first day of trading in Shanghai.

But taking $30 billion out of the pockets of stock and bond buyers isn’t going to help prices of any of Chinese stock traded in Hong Kong or Shanghai. $30 billion (or even the $90 billion projected through 2011) isn’t enough to tank the Chinese stock markets but it is enough to take a little bit of the air out of any bubble.

Which is just what Beijing regulators are hoping to accomplish.
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