Not a bad swap, it might be thought, but just as it was always hard to see the purpose of the similarly constructed "strategic partnership" RBS once had with Santander, this one looks equally baffling.By confining himself to such a small stake, Sir Fred has limited his risk, but by such a degree that it's hard to see the point of it The risk may in any case be bigger than RBS likes to admit. With Merrill Lynch and Hong Kong's Li Ka-Shing as co-investors, Sir Fred could hardly have found better connected partners for his Chinese adventure.What's more, fears that RBS would end up betting the ranch in its determination to secure a place at the table have proved ill founded. As one of the pretenders to the top five slots in global banking, RBS has to secure some kind of a position in the world's key growth economy and this may be the maximum it can do for the time being.RBS gets just 5 per cent of the equity for its $1.6bn investment, but it will speak for the investing consortium's full 10 per cent and gets a seat on the board to boot. If that is what Sir Fred is betting on, then he's made a mistake.The strategic reasons for the move are none the less obvious enough. As populations become more prosperous, there is a growing demand for financial services, which tend to grow even more strongly than everything else.
Foreign capital and expertise is being used in an attempt to underpin what is still a deeply flawed and unstable banking system, but it is naive to believe that even in the fullness of time the Chinese will allow foreign concerns to control its major industries, companies and financial institutions. There is little evidence that Vodafone has ever got anything out of the similarly cemented strategic partnership it struck with China Mobile, and perhaps inevitably, the value of its stake in the company has since had to be written down.Reasonably enough, the Chinese regard China as for the Chinese. China may have adopted many of the mores of Western capitalism, but this is still essentially a closed and politically controlled economy where inward investment is regarded as precisely that; the money and know-how comes in, but little ever comes out.In the "strategic partnership" created by the RBS investment, the Chinese will be glad to take Sir Fred's expertise on state of the art banking, from risk control to advanced IT, yet it is not at all clear what he's going to get back in return. Theoretically the RBS chief executive could have bought up to 20 per cent, which plainly would have been a much bigger throw of the dice.Yet the fact of the matter is that he's quite late into the game, and as things stand there is no possibility of ever being allowed to take control Bank of China.
With the Chinese it has traditionally been all take and very little give.Will Royal Bank of Scotland Group's $1.6bn investment in Bank of China, the country's second largest bank with approximately 14 per cent of deposits, be another case in point? I fear it might, notwithstanding Sir Fred Goodwin's insistence that the investment is fully protected and his decision to limit himself to just 5 per cent. The Chinese are very happy to take the West's money and expertise, but examples of decent levels of payback are few and far between. The history of foreign involvement in China has none the less thus far been a disappointing one, and that's leaving aside the moral issue of whether it is ever right for businesses to invest in countries with such a poor human rights record.Dictatorially run countries on the whole make very poor investment repositories, whatever their superficial attractions. Any company that intends to be around in 50 years time would be negligent if it wasn't seeking some sort of a foothold. They've yet to put a foot wrong in the switch from planned to market-based economy. No wonder chief executives are falling over each other in their desperation to get a slice of the action. Certainly that's the intention and there is little reason to think China's fiercely ambitious political leadership won't succeed. Given time, there's no reason it shouldn't get back to that sort of position.