By Wei Tian
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 urbanisation, 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 US$2.5 billion (S$3.2 billion) stake in Bank of China Ltd and China Construction Bank Corp, but buying US$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 per cent of Temasek's S$198 billion portfolio.
Last fiscal year, Temasek's net profit decreased by 16 per cent to S$10.7 billion.
The proportion of Asian investment in its portfolio, excluding investment in Singapore, has decreased from 45 per cent to 42 per cent, while the proportion of North American and European investment has gone from 8 per cent to 11 per cent.