He said that co-operation with Citibank was smooth; and that the world's largest financial services provider has the option to raise its stake to 19.9 percent by 2008 according to their strategic agreement in 2002.

"If everything goes smoothly, we will seal a final agreement with Citigroup on its intended stake expansion by the end of the year," Shen added.

Citibank currently has 4.62 percent in the Shanghai-based lender while its largest shareholder, Shanghai Financial Bureau, has 8.26 percent.

Due to the fragmented shareholding structure, Citibank is likely to be the largest shareholder after it raises its stake but Shen is not worried about ceding control.

"It does not imply that Citibank will control us as domestic investors have the controlling stake," Shen added.

Nine of the 10 biggest shareholders are local investors or firms controlled directly or indirectly by the Shanghai government; and together, they have 32.44 percent of the listed lender.

SPDB is also currently planning to sell its State shares. "The earlier this process finishes, the better our financing plan will move on," said Shen.

According to Yang Qingli, an analyst with CITIC Securities, Citibank's stake expansion has nothing to do with SPDB's on-going State shares reform.

Dong Chen, an analyst with China Securities, shared Yang's viewpoint. "Citibank will suffer no loss after SPDB sells its State shares. On the contrary, it is expected that SPDB's market capitalization would rise."

Another analyst who did not want to be named told China Daily: "Citibank's move is also a response to its global rivals who are accelerating their investment in China."

Earlier this year, HSBC raised its stake in Ping An Insurance Company of China from 9.99 percent to 19.9 percent. Meanwhile, it also has a 19.9 percent stake in Bank of Communications (BoCom).

In March, ING bought 19.9 percent of the shares of Bank of Beijing. DBS and Deutsche Bank also plan to purchase 10 billion shares in Guangdong Development Bank (GDB).

"Foreign investors are stepping up their investment in China but they are more interested in joint stock banks because they can gain control," Wang Yuanlong, a senior economist at Bank of China, said. Foreign institutions can turn around smaller banks and make them profitable in a short period if they manage to get control.

The CBRC stipulates that 20 percent is the highest a single foreign investor can hold in a domestic bank; and combined, foreign shareholders cannot control more than 25 percent.

Currently, only US equity fund Newbridge Capital has a controlling stake in a Chinese lender, after it bought 17.9 percent of Shenzhen Development Bank last October.

(China Daily August 26, 2005)