The point about investing is to find out what’s hot and get in there.”
Two stories today present compelling views of China’s financial system from essentially opposite perspectives. One is a profile of Jang Jianqing, the head of the Industrial and Commercial Bank of China Ltd., and co-chairman of the World Economic Forum at Davos.
As Bloomberg’s Jun Luo and Zijing Wu point out, Jang arrives at Davos this week as chairman of the world’s most profitable bank. ICBC in 2012 earned $39 billion–nearly twice JPMorgan’s $21 billion.
At the other end of the financial spectrum is this article about the market for China’s IPOs. That’s where you’ll find the quote at the top of this post. It’s from a construction worker in Harbin, Xu Nan, who hopes to participate in China’s latest round of stock offerings.
Xu’s in the minority here: the majority of Chinese have learned to distrust their stock market, and with good reason. In a market in which the point is to “find out what’s hot and get in there,” ordinary folks aren’t exactly at the head of the line. Investors who had the misfortune to invest in Shanghai-listed shares in, say, 2007 are still paying for it.
So what does that have to do with ICBC? Well, ICBC’s success has a lot to do with the failures of China’s stock market. ICBC holds $2.5 trillion in deposits. That’s almost double JPMorgan’s $1.3 trillion. At the end of 2011, almost a trillion dollars of that was in savings accounts held by ICBC’s 282 million personal banking customers. Such accounts, and real estate, are where China’s ordinary citizens hold their savings.
In effect, as China’s economy grows, few of its citizens are in a position to benefit from the growth of China’s public companies. And, conversely, the public markets are not able to tap into the bulk of China’s savings. Having been burned before, savers aren’t really eager to enter a market perceived, with justification, as a wild gamble.
China is not unique in this. The pre-1929 stock market in the United States, too, was a wild place, subject to surges, panics and market corners: a game played largely by the very wealthy or the very stupid. Turning that playground for speculators into an engine of the economy was one of the signal achievements of the U.S. financial system (one that recent events show we can’t take for granted). There will be a huge payoff both for investors and for China’s economy when the Shanghai exchange gets to that point. Getting there will probably be a long and wild ride.