UBS said it was interested in establishing closer relations with one of China's big-four state banks. "If we could [form a] joint venture or partner, that would be pretty interesting," UBS Investment Banking head John Costa told Reuters, adding a minority stake would be the likeliest scenario. Linking up with a top Chinese company, he said, �you are guaranteed to be one of the long-term winners." HSBC and several US banks have expressed similar interest in forming partnerships, but Costa said, as a Swiss bank, UBS offered "a significant alternative." HSBC Holdings recently bought 19.9% of Bank of Communications for US$1.75 billion.

China's central bank, the People's Bank of China, said the country's commercial banks should prepare to launch fund management firms and develop their fund business. In a statement on its website, the People's Bank said the State Council, China's cabinet, had agreed to the issue on principle although it did not give a time for the change. The new business would increase the banks� diversification, enhance their international competitiveness and spread the risks of indirect financing, the People's Bank said. China's banks have been keen to enter the fund business since it would open new profit opportunities and reduce their reliance on income from offering loans.

China Construction Bank, one of the so-called Big Four state-owned banks, plans to issue up to RMB10 billion (US$1.2 billion) in subordinated debt Friday. According to state media, the bank plans to issue RMB 8 billion in 10-year bonds, and has reserved an option to expand that to RMB10 billion, depending on investor demand. The sale is the second issuing of debt bonds by the bank following the sale of RMB15 billion in subordinated bonds in July, and is intended to replenish its capital base ahead of a planned IPO. Last December the bank received US$22.5 billion in bail-out money from the central government, a prelude to the bank being chosen as a pilot project to turn it into a joint stock bank.

Chinese shares hit a five-year low Thursday, state media reported. The benchmark Shanghai composite index, grouping A shares and hard-currency B shares, finished down 1.9% at 1,284.307 points after touching 1,281.749 � its lowest level since June 4, 1999. Heavy selling of blue-chips by institutional investors added to already weak investor confidence in China's stagnant markets. Among the biggest price losers was steel maker Baosteel with its A shares dropping 3.1%, to RMB 5.89 (US$0.711). A drop below the psychologically significant 1,300 level is expected to further undermine investor confidence, analysts said. In total, the Shanghai composite has plunged by more than 27% since early April.

Reports named China Life Insurance as a possible shareholder in China Construction Bank's new shareholding company set to launch September 21 in preparation for CCB's forthcoming flotation. Analysts said China Life's investment could signal restrictions separating insurance and banking activities could be lifted. Central Huijin Investment, the company set up to hold government bank investments, will be the controlling shareholder. Beijing last year poured US$22.5 billion into CCB, China's third largest bank, and the same amount into Bank of China. Other possible shareholders named in reports include Baosteel, State Grid Corp and China Yangtze Power, the listed vehicle behind the Three Gorges Dam.