Red Flag? Goldman Sachs Cuts Exposure to China

Goldman Sachs (NYSE:GS) is selling its 4 percent stake in the world’s biggest bank by market value to Temasek Holdings, which will buy 3.55 billion of Industrial and Commercial Bank of China’s Hong Kong-listed shares, or roughly 1 percent of ICBC.

Foreign banks, including Goldman, Royal Bank of Scotland (NYSE:RBS), and Bank of America (NYSE:BAC), spent a combined $22 billion between 2004 and 2006 to purchase stakes in Chinese lenders ahead of their initial public offerings. But in the last year, many of those banks have begun to sell their stakes. After the sale to Temasek, Goldman will have about $3 billion in ICBC shares left.

Meanwhile, Temasek is increasing its bet on the Chinese banking industry, which was largely insolvent six years ago but now includes four of the world’s top 10 banks by market value. Temasek already owns stakes in China Construction Bank and in Bank of China. In fact, Chinese assets accounted for 20 percent of its portfolio as of March 2011.

With this latest purchase, Temasek increases its stake in ICBC to 1.3 percent. Ding Wei, head of Temasek operations in China, said the company was investing in ICBC because the price was “reasonable” and because the company was optimistic about the bank and long-term development in the country.

Temasek’s financial services portfolio includes states in DBS Group of Singapore, the Indian lender ICICI Bank, and Standard Chartered. Temasek has raised $800 million since the beginning of this year in three portfolio sales, including the sale of a 1.4 percent stake in ICICI. Temasek has also announced plans to sell its 67.4 percent stake in Indonesian lender Bank Danamon to DBS in exchange for DBS shares in a deal awaiting regulatory approval.