It was reported in the mainstream media that Temasek Holdings had trimmed its stakes in both the Bank of China (49%) and China Construction Bank (8%), selling out at a discount to market price. As I had written in an earlier post last November, our money appeared to have been used to partially pay for the fiscal stimulus of the PRC government through the funding of these state-owned banks. Given Temasek's consistent claim of being a long-term investor, one has to wonder what horrors are found in the balance sheet of these 2 banks for our SWF to have changed its mind only slightly more than half a year after the purchase of the stake in CCB.
That said, I am of the view that the purchase of the CCB stake was more likely to have been a political decision rather than an economic one. My reasoning is very simple: If a layman can pay US$30 to buy the book Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise, read it and realise much bad debts there are in the PRC's financial system, there is no reason our SWF, with much better access to information and expertise, should have failed to discover the same facts.
The consolation for Singapore is that Temasek managed to make money this time round. So we know that the Chinese are better friends to us than the Americans. The last time we helped bail out 2 US institutions during the 2008 financial crisis, the Americans made us eat their losses.
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