China: To Float or Not To Float? (D)- Bank of America's Strategic Investment in China Construction Bank

Laura  Alfaro; Rafael M. Di Tella; Ingrid  Vogel

Case | HBS Case Collection | March 2006 (Revised November 2006)

China: To Float or Not To Float? (D)- Bank of America's Strategic Investment in China Construction Bank

by Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

Abstract

With its $3 billion investment in Chinese state bank China Construction Bank, Bank of America--the second U.S. bank behind Citigroup in terms of assets and market capitalization--was one of several foreign banks directly participating in China's banking sector reform. Banking sector reform was considered by some analysts to be an important complement to capital account liberalization and further changes to China's exchange rate regime.

Keywords: Currency Exchange Rate; Banks and Banking; Foreign Direct Investment; International Relations; Banking Industry; China; United States;

Format: Print

9 pages

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Citation:

Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "China: To Float or Not To Float? (D)- Bank of America's Strategic Investment in China Construction Bank." Harvard Business School Case 706-031, March 2006. (Revised November 2006.)

In the decades following 2005, China faced significant financial challenges. Inflation spiraled upwards and China’s economy stagnated in the wake of the Global Financial Crisis. The country’s leaders took an interventionist approach to weather the storm, controlling capital and exchange rates. These actions raised criticism from other nations, and in 2017 the U.S. initiated the U.S.-China Trade Wars, which enforced tariffs and requirements for increased transparency. As implications of the trade wars remained uncertain, many wondered whether the central bank would introduce further discreet steps to change the yuan. Would China’s currency appreciate as substantially against the U.S. dollar as predicted by economists? And when would further change occur? The stakes were high; a freer yuan float would impact groups within and outside of China very differently. Would China’s currency then be allowed to depreciate or appreciate if fundamentals required it?

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China: To Float or Not To Float? (D)- Bank of America's Strategic Investment in China Construction Bank

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