The ugly escalation of diplomatic tensions between China and Australia has rattled the local business community, including directors and senior executives of the four major banks.
The detainment of Australian journalists working in Beijing and attendant diplomatic efforts to “negotiate” their safe passage out of the country is a spooky development that signals an intensification of political risks for local companies operating in China.
While each of the major banks are licenced to operate branches in Shanghai and Beijing, Australia’s largest bank, CBA, is the most exposed to potential business disruption flowing from the hostile turn in diplomatic relations.
CBA has plenty at stake in the Chinese financial services market, including the $668 million sale of its 37.5 per cent stake in BoCommLife that cannot complete without approval of China’s Banking and Insurance Regulatory Commission.
More than two years have passed since CBA announced the sale of the BoCommLife interest to Japan’s Mitsui Sumitomo and CEO Matt Comyn’s present expectation is that regulatory clearance is likely sometime next year.
Three years is a long time to wait for regulatory approval on a relatively small transaction that stands to bear little impact on the dynamics of the Chinese financial services market.
Other Australian banks engaged in similar transactions received clearances in less than half that time.
In January 2017, ANZ announced it was selling a 20 per cent stake worth $1.8 billion in the Shanghai Commercial Rural Bank.
Even though the ANZ transaction was much larger and had to be restructured after one of the buyers backed out of the deal, the sale was approved in December 2017.
The regulatory delay on the BoCommLife deal might be an indication that CBA is already paying some kind of price for being an Australian-owned company.
Whatever the reason for the delay, it suggests that Comyn’s program to simplify the group’s business operations might not be completed before his tenure as CEO expires.
CBA has other significant investments in China, including minority stakes in the Bank of Hangzhou and Qilu Bank.
According to CBA’s latest financial accounts, the 16 per cent stake in Bank of Hangzhou is valued at $1.81 billion and the 18 per cent interest in Qilu is reported to be worth $760 million.
The two businesses suffered earnings declines in the 12 months to the end June and the immediate prospects for turnarounds in their financial performance have been obscured by the COVID-19 crisis.
While several Australian analysts believe moves to offload the investments would be consistent with Comyn’s simplified operating model, there is a real prospect that any sale deal could take two, three or even more years to clear Chinese regulators.
The shambolic state of Australia’s diplomatic relationship with China means that CBA’s business mix might remain a tad complicated for longer.