The Bank of China’s IPO has exceeded expectations, with the lender’s share price rising 15 percent on the first day of trading. As well as being positive for early investors like Royal Bank of Scotland, it is good news for the country’s banking sector. Increased foreign investment should improve bank management and lending practices while the inflow will help its balance sheet.

This has worked relatively well for the Citigroup-invested Shanghai Pudong Development Bank (SPDB). … relatively:

THREE ILLITERATE peasants are in court this week accused of fleecing 82 million RMB from the Shanghai Pudong Development Bank through the use of forged PLA documents. 66 million RMB has already been frittered away, according to reports.

The black hole in the bank’s finances was discovered at the end of 2004 at its Beijing branch. It turns out that the 82 million RMB loan was signed off by the vice-chief of the branch without going through the required approval procedures. The vice-chief, Yu Tianlai, was sentenced to six years in prison last year. He said that he approved the loan because he wanted to take credit for a particularly large piece of business.

Yu admitted that the money was transferred to something called the Shanghai Zhisheng Chemical Company, which had presented accreditation documents from the Central Military Commission, saying that the company was responsible for decommissioning PLA materiel but needed a mortgage.

The man alleged to be responsible is 51 year-old Liu Shulin, a farmer who became a construction worker in Beijing.

Technorati Tags: asia, china, east asia, economy, northeast asia

In November, prior to his selection as US treasury secretary, Henry Paulson gave an extended interview to Germany’s Der Spiegel, offering some of his views on topics including the US deficits and China’s treasury holdings. While generally optimistic on foreign holdings of T-bills, Paulson is not in denial about the deficit being a problem.:

SPIEGEL: The U.S. economy is increasingly dependent on the willingness of the Chinese and other Asian countries to buy huge quantities of U.S. dollars to keep the currency from crashing. Is America’s monetary independence under threat?

Paulson: I think it’s ironic when the very people who rely on growth in the United States for their exports complain about our deficit at the same time. The majority of the world’s countries depend on America as the most important engine for growth.

SPIEGEL: But this situation - where the world’s poorest nations feed capital to its richest country - flies in the face of all experience. It would be like water running up a mountain.

Paulson: It is as much in China’s interests as those of the U.S. that China invests in the dollar. I would say the same about some of our European trading partners. Moreover, a lot of money around the world is seeking investment opportunities. Growth and returns on capital are important drivers of these inflows.

SPIEGEL: Nonetheless, how do we get out of this situation?

Paulson: The United States can only reduce its budget deficit through further growth and greater spending discipline. Trade imbalances normally take care of themselves over time, as currencies adjust or - as in Europe - there is increased growth. Provided, of course, that we are not going to have trade wars or an increase in trade barriers. Those would be very bad for the world economy.

Technorati Tags: asia, china, east asia, northeast asia