While it would not necessarily bringAgBank much in terms of banking technology or risk management,an investment would allow China to use its reserves to funddomestic investment. China Life, on the other hand, could be an partner as wellas an investor. Chinese banks have become a vital distributor ofinsurance policies. AgBank can help China Life tap into a marketof 700 million farmers, equal to twice the U.S population. Chinese financial firms all have ambitions to becomefinancial conglomerates, and a strategic investment will helpChina Life, and probably AgBank too, get closer to that goal.

Of course, just because you stop favouring foreign investorsdoesn’t mean you should start favouring the locals The rightanswer is to favour no-one. That would allow real price competition for the shares,meaning that the most likely winners would be those institutionsthat most valued the relationship. Moreover, a propercompetition would not leave too much money on the table andwould be fair for future common investors. OLD THINKING That said, the powers that be still seem to be hung up onold thinking. Despite the credit crunch, Western banks are stillregarded as superior by many in China. Xiang Junbo, the chairmanof AgBank, said in a recent interview with Asian Banker that hestill believed foreign strategic investors would bring “advancedconcepts, risk management models and microfinance experiences.” Yet it is far from clear that sophisticated Westerninstitutions have that much to teach AgBank, which is dealingwith a large, relatively poor clientele. For instance, if AgBankreally wants to learn about microfinance, it would probably dobetter to engage microfinance pioneer and Nobel laureateMuhammad Yunus as a consultant rather than, say, to bring in theFrench bank, Credit Agricole, as a shareholder.

To use a Chinese idiom — Chinese banks and their foreignstrategic investors have been sleeping in the same bed butdreaming differently. The Chinese hoped to learn from theWesterners but never fully trusted them, while the Westernersplanned to use the partnership to build their own franchise inChina The credit crunch has merely laid bare these differences. TIGHTER SELECTION CRITERIA Facing the backlash against foreign investors, Xiang said hewould tighten the selection criteria applied to foreigninvestors, probably extending the lock-up period from three tosix years. Foreign bidders for a stake in AgBank must befinancially strong, and be experienced in agriculture, ruralarea business and microfinance loan extension, he said.