What are China’s intentions?

The Singapore and Chinese governments may bid for a stake in ABN AMRO Holdings NV in support of Barclay’s Bank in it’s attempt to procure the purchase of ABN AMRO Holdings NV.

Barclay’s has plans to raise it’s ABN AMRO bid to about 50 billion pounds, the BBC said. If the deal proves to be a success, China would get 7% of the stake and Singapore’s investment arm, Temasek Holdings, headed by Ho Ching, the wife of Singapore’s Prime Minister, Lee Hsien Loong, would get 3%.

Barclay’s Bank would go down in the annals of banking history as the bank to have made the largest acquisition if the deal is successfully finalised. It is proving to be a two horse race to get to the finish line. The other horse in this race is The Royal Bank of Scotland.

China has initiated a state executed investment fund and seeks to gain higher returns from it’s 1.3 million of foreign exchange reserves. The Chinese government is "sitting on a pile of cash and there are only so many government bonds that they can purchase, so investing in equities is an increasingly attractive option," said Craig James, an economist at Sydney-based Commonwealth Bank of Australia.

Barclay’s may also buy back several million pounds of its own shares if the takeover is final. The two countries would take smaller stakes if the ABN AMRO bid fails. Blackstone Group Lp are initiating the arrangement of the deal. The auction for ABN AMRO seemed to have reached greater heights as The Royal Bank of Scotland has now raised the stakes to 71.1 billion euros. RBS has thus exceeded Barclay’s initial offer of 64.5 billion euros. The NRC Handelsblad reported that ABN Amro Chief Executive Officer Rijkman Groenink said he expects most of the company's shareholders to choose the Royal Bank offer because it is higher .

As far as this deal is concerned, China and its little brother, Singapore may have to hope that Barclays wins the bid so as to get a probably better cut of the pie. Nevertheless not everyone is pleased it seems with the government trying to procure stakes in the bid for the bank. "In general I'm not a fan of governments taking direct stakes in companies," said Shane Oliver, who helps manage the equivalent of $83 billion at Sydney-based AMP Capital Investors. "It's the start of a trend and the market's reaction to it will depend on China's motives for taking these stakes."

And so, the question remains. What are China’s true intentions? Are they politically motivated or purely for the sole purpose of investment? What is your say?