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China shops in UK

• Robert Peston
• 23 Jul 07, 07:45 AM

It is a deal that tells you most of what you need to know about the modern financial world.

First, it confirms that the Chinese state is using its enormous financial muscle to acquire assets and knowhow abroad. A strategic stake will be taken by the in , and its shareholding will be even bigger if Barclays succeeds in buying its huge .

Second, the deal shows the enthusiasm bordering on desperation of western institutions to tap into the huge Chinese market.

Barclays hopes its new relationship with the China Development Bank will yield it hundreds of millions of pounds in extra profits from doing new business in the enormous Chinese economy.

Also, it underlines the massive financial clout of the government investment arms of cash-rich trading economies like Singapore - since Singapore's is also taking a significant stake in Barclays.

And, of course, it proves once again that takeover battles are the most competitive sport around - since Barclays hopes that its new Asian financial firepower will help it carry off ABN and trounce the rival offer from a consortium led by .

It's all high testosterone stuff.

But when the initial excitement has died down, there will be some politicians and business people who will wonder whether when China buys abroad on this scale, the balance of economic power may be shifting eastward in a way that should concern us.

UPDATE 09:00: There are likely to be two particularly fruitful areas of mutual co-operation between Barclays and the China Development Bank.

One is business in Africa, where Barclays is a leading financial institution and where Chinese interests are buying up anything and everything.

The other is in commodities: China’s appetite for commodities remains one of the most powerful economic forces in the world and Barclays Capital has a growing commodities trading business.

What’s unclear to me is whether the CDB deal provides an answer to the question of what Barclays does if – in the end – Royal Bank’s consortium walks off with ABN, or whether the blow to Barclays’ reputation would be even greater if it loses.

On the one hand, CDB and Temasek are making a significant investment in Barclays, irrespective of whether it wins ABN.

However, they would commit vastly more to a merged Barclays and ABN – which underlines the importance of that deal to Barclays’ own view of what it needs to do to secure its long-term prosperity.

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