Temasek to hold on to stakes in Chinese banks

Temasek Holdings Pte Ltd will maintain its stake in China's banking sector in the long term despite a possible economic slowdown and the ongoing interest rates reform, the Singapore state investor said on Thursday.

"Seeing the current increase in consumption and ongoing urbanization, we are still confident in China's economic potential," Ding Wei, head of operations at Temasek China, said at a Beijing news conference.

Ding said the Chinese economy has slowed amid the current global economic downturn and internal imbalances, but he believes it is not likely to have a hard landing.

"The banking industry is the acme of a country's economy, thus we will maintain a considerable scale of holdings in Chinese banks," he said.

Temasek this year has made a series of changes to the way it allocates its investments in mainland banks in the Hong Kong market, selling, for example, a $2.5 billion stake in Bank of China Ltd and China Construction Bank Corp, but buying $2.3 billion worth of Industrial and Commercial Bank of China Ltd shares.

Ding denied that the operations are "short-term", only saying "Temasek's operations are based on long-term strategy".

The People's Bank of China's recent decisions to cut interests rates have been widely viewed as marking the start of more market-oriented reforms and as posing a threat to commercial banks' profits, which used to come mainly from interest. Ding said the effects of the changes have appeared in lending institutions' share prices.

"But what Temasek values is not just their net profit but their market value," Ding said.

According to Temasek's recently released 2012 annual report, China receives the second-largest amount of the company's investments - no less than 20 percent of Temasek's S$198 billion ($157 billion) portfolio.

Last fiscal year, Temasek's net profit decreased by 16 percent to S$10.7 billion.

The proportion of Asian investment in its portfolio, excluding investment in Singapore, has decreased from 45 percent to 42 percent, while the proportion of North American and European investment has gone from 8 percent to 11 percent.

China's percentage of the investment was up slightly from the previous year, said Lau Teck Sien, managing director of investment at Temasek Beijing.

"Most of Temasek's investments in China are in the banking sector, but we are also actively exploring new investment opportunities," Lau said.

By the end of the last fiscal year, the proportion that investments in financial services had in Temasek's total investments was down by 5 percentage points to 31 percent, a result of the global financial crisis.

Meanwhile, Tamasek has doubled its exposure to the energy sector in the past fiscal year, taking it from 3 percent to 6 percent.

Part of that addition came from an equity purchase of part of PetroChina Co's unit Kunlun Energy Co Ltd.

The transaction involved nearly half of the $1.34 billion worth of shares in Kunlun Energy, Reuters reported, citing sources with direct knowledge of the deal.

CITIC Securities Co Ltd and ICBC were added to Temasek's China investment portfolio last fiscal year.

The state investor also holds stakes in Alibaba Group, Tudou Holdings Ltd, Shanghai Pharmaceuticals Holding Co Ltd and New China Life Insurance Co.