HSBC became the first foreign commercial bank to secure a stake in a mainland bank when it acquired an 8 per cent share of Bank of Shanghai in December. The Hong Kongbased Shanghai Commercial Bank acquired 3 per cent of the bank, while the private investment arm of the World Bank, the International Finance Corporation, raised its stake from 5 to 7 per cent.
Previously, the governor of the People’s Bank of China, Dai Xianglong, said he welcomed foreign investment of up to 25 per cent in the country’s shareholding banks. Any more would make it a joint venture bank, he explained. Dai also said that these banks should have independent directors.
Small Chinese banks are anxious to attract foreign capital and they tend to be more efficient and have lower levels of nonperforming loans than the big banks. Beijing City Commercial Bank is negotiating a foreign equity participation and plans a stock market listing some time after 2003.
Facing growing competition from these smaller banks and foreign entrants, China’s big four banks are to be allowed to issue long-term bonds and seek stock market listings, said state television. The announcement in mid-January was made a few weeks before an important government conference on the financial sector was due to take place.