International investors will have an opportunity to buy non-performing assets worth 4.2 billion yuan (US$506 million) from the China Construction Bank (CCB).

There are 162 mortgaged real estate projects up for sale in 58 major cities around the country.

More than 70 percent of the projects are in the city of Dalian in Liaoning Province and Guangdong, Shandong and Heilongjiang provinces.

Besides the 4.2 billion (US$506 million) of assets on sale, the bank still has about 11 billion yuan (US$1.3 billion) of mortgaged assets, he said.

The bank sold 10.4 billion yuan (US$1.3 billion) of mortgaged assets and recovered about 3.9 billion yuan (US$469 million) last year.

Mortgaged assets will continue to be sold during two designated "auction months" in the spring and autumn, added Yang.

But other means will also be found to sell the assets, Yang said.

The bank signed an agreement last year with US investment bank Morgan Stanley to resolve bad assets valued around 4 billion yuan (US$482 million), he said,

"But the deal has yet to be approved by government departments, including the central ," he said.

Niu Li, a senior economist with the State Information Center, said that China's four largest state-owned banks, which also include the Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China, will have to sharpen their competitive edge before foreign banks gain unrestricted access to the Chinese market at the end of 2005.

"They will have to lower the rate of non-performing loans (NPLs), get rid of historical financial burdens and raise their capital adequacy to international standards," Niu said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio will have to reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers.

This means China's commercial banks, especially the "big four" state-owned banks, will have to achieve the goal before they get listed, he said.

"Reducing bad loans is the first step by the banks to go public," he said.

Chinese banks usually use bad loan reserves taken from their profits to write off non-performing loans.

Capital injection from the central finance is another way to write off NPLs besides bad loan reserves, Niu said.

The state ploughed US$22.5 billion into China Construction Bank last year to increase its capital adequacy.

"With an aim to become more competitive, Chinese commercial banks will also have to step up business supervision and risk control measures," said Yiping Huang, a senior economist at Citigroup.

They will also have to speed up establishment of a corporate governance mechanism, he said.

The bank made a 51.2 billion yuan (US$6.2 billion) profit last year before setting aside provisions for bad loans.

The bank's non-performing loans (NPLs), by the international standard of five category classification, stood at 9.25 percent at the end of last year.

Bank President Zhang Enzhao said higher profits and improved asset quality are crucial for the CCB, which plans to go public before the end of this year.

The State Council gave the green light last year to both the CCB and the Bank of China to start shareholding reforms on a trial basis.

"China Construction Bank will give key attention to improvement of corporate governance and reform of the internal organizing structure," Zhang said.

The bank will also improve its risk management capability in order to further improve its asset quality, he said.

(China Daily February 21, 2004)