Published on 4th December 2023

This is the first in a series of three blogs that I will be releasing in quick succession, on China and the problems of British banks there.

You can access the whole article beneath the Daily Express headline via this link:

https://www.express.co.uk/finance/city/1829526/china-economy-standard-chartered-bank-contagion

Standard Chartered took two write-downs in Q3 2023.

Firstly a £596 million reduction in the value of its 16.26% stake in China Bohai Bank, a stake that was worth about £2.1 billion at the start of the year. That is a write-down of 28%.

Then it added £158 million to its loan loss provision for its own, direct lending on Chinese real estate.

This is an important pattern and points to a doubling-up of exposure on Chinese commercial property lending. China Bohai Bank has its own portfolio of commercial property lending, as well as residential property lending. Standard Chartered Bank then has a portfolio of commercial property lending, such that there is risk exposure to the same market segment both in the main bank and in its affiliate.

Loan losses will affect both the bank’s own loan portfolio and the value of the shares it holds in its affiliate.

At the same time as announcing these losses Standard Chartered emitted emollient reassurances that these were just blips along the road of China’s emergence as an economic powerhouse.

The trouble with that analysis is that it overlooks the scale of the problems at real estate enterprises like Evergrande and Country Garden, and the shadow banking entities that have financed the real estate sector.