Why Buy Into The China Story?

Bank of East Asia: Earnings dives 52% in 1st half 2008 due to losses in financial instruments while net profits from maniland China operations rose 50% or 26% of income(excluding writedowns).

HSBC: 29% down in earnings

StanChart Bank: 30% growth in 1st half profits. Operating profits from China operations (excluding last year's one off profits) were up 50%. India first half pre tax profits up 89% while HK accounts for 25% of profits. The bank is looking to list in India and China eventually.

If the foreign banks are looking to list in China, and China accounts for over 50% of their profits, then it is obvious that the Chinese banks themselves are a good buy. The competition will be growing but the pace of foreign banks expansion into China is restricted and they will not have a major deposit base.

The analogy is the foerign banks in HK find it difficult to compete with HSBC, StanfChart and bank fo China for local deposits relying instead on borrowing from them on the inter bank market.

The biggest assets of the Chinese banks are their huge deposit base and branch networks. A foreign will have no chance of duplicating that.