China Said to Plan Replacing Chen at Largest Policy Lender

Photographer: Nelson Ching/Bloomberg

Chen Yuan, outgoing chairman of China Development Bank Corp. Close

Chen Yuan, outgoing chairman of China Development Bank Corp.

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Photographer: Nelson Ching/Bloomberg

Chen Yuan, outgoing chairman of China Development Bank Corp.

China Development Bank Corp. Chairman Chen Yuan will step down, handing the reins of the world’s largest policy lender to Bank of Communications Co.’s Hu Huaibang, said two people with knowledge of the matter.

An announcement may not be made until next week, said the people, asking not to be named because they aren’t authorized to speak to reporters on the matter. The South China Morning Post newspaper reported Hu’s move to Beijing-based CDB yesterday.

Chen, son of one of Communist China’s founding fathers, in 1998 took over a bank with a bad-loan ratio of more than 40 percent. The 68-year-old has pared that to less than 1 percent while building an institution bigger than the World Bank, with assets last year of 7.37 trillion yuan ($1.2 trillion).

“Chen Yuan is currently one of the very few big shots in China who has financial experience and rich political and economic ties,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Group, said in a telephone interview. “Chen doesn’t just represent himself or CDB, he represents China.”

Premier Li Keqiang is relying on CDB to achieve the government’s policies of urbanization and cutting pollution. The state-owned bank created the system of local financing for infrastructure projects during Chen’s first year at the helm, helping to fund highways, schools, dams and housing developments across the country. The system helped cushion China from the global financial crisis.

Photographer: Lam Yik Fei/Bloomberg

Hu Huaibang, chairman of Bank of Communications Co. Close

Hu Huaibang, chairman of Bank of Communications Co.

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Photographer: Lam Yik Fei/Bloomberg

Hu Huaibang, chairman of Bank of Communications Co.

Local Governments

CDB is the biggest lender to so-called local government financing vehicles that have accumulated at least 10.7 trillion yuan in debt. Half of the bank’s lending this year will go to urbanization, according to a Jan. 29 notice on its website.

Hu, 57, has been chairman of Bank of Communications since 2008. On his watch the Shanghai-based lender reported average 20 percent annual profit growth, while its assets almost doubled from December 2008 to 5.27 trillion yuan at the end of 2012. The bank also bolstered its capital and deepened cooperation with HSBC Holdings Plc (HSBA), which owns about 19 percent.

Chen will help set up a new development bank for the BRICS countries, which group China with Brazil, Russia, India and South Africa, Caixin reported yesterday, citing people close to CDB that it didn’t identify.

“Chen joining the BRICS bank would mean China wants to keep building CDB’s international presence,” said Phillip Securities’ Chen, no relation to Chen Yuan.

A press officer at Bank of Communications in Shanghai said the lender hasn’t received any notice regarding the change in management. Xu Fei, a spokesman for CDB, didn’t answer calls to his mobile and office phones and didn’t immediately respond to an e-mailed request to comment on the personnel move.

Zero Risk

The appointment of Hu may speed up the process of converting CDB into a commercial lender under a restructuring plan approved in 2007. While the bank became a joint-stock company in December 2008, holders of its debt are still allowed to categorize such investments as “zero” risk, meaning they don’t need to set aside additional capital to cover potential losses. That’s helped keep CDB’s borrowing costs low.

CDB, like China’s other two policy banks, doesn’t take deposits, instead financing its loans through debt sales in the domestic and overseas markets. The lender, wholly owned by the state via the Finance Ministry and a sovereign wealth fund, got a $20 billion government capital injection in December 2007.

Green Energy

Under Chen, the son of Mao Zedong’s economic czar Chen Yun, CDB became the nation’s largest lender for funding acquisitions and investments abroad, with more overseas lending than any of China’s four main commercial banks. At the end of last year CDB had $248.2 billion in foreign-currency loans.

Since 2008, CDB has lent Venezuela more than $40 billion to be paid back through oil shipments. In the past decade it made $65 billion in lines of credit available to ZTE Corp. (000063) and Huawei Technologies Co. to fund their global expansion.

CDB has also been the biggest lender to China’s alternative energy companies, including Yingli Green Energy Holding Co. Since 2010, the bank has committed credit lines of $68.8 billion to solar and wind companies, according to figures from Bloomberg New Energy Finance.

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net; Jun Luo in Shanghai at jluo6@bloomberg.net; Henry Sanderson in Beijing at hsanderson@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net

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