The International Finance Corp (IFC) - the World Bank's (WB) private sector arm - plans to speed up direct investment in China's commercial banks.
The IFC signed a subscription agreement with Nanjing City Commercial Bank in Beijing to invest US$27 million in the small shareholding bank in East China's Jiangsu Province.
The IFC, in turn, became the third largest shareholder of the Nanjing Commercial Bank by holding a 15 per cent stake of the Chinese bank.
The investment in the Nanjing Commercial Bank represents the IFC's continued efforts to support the development of the non-State banking sector in China and the country's ongoing financial reform, following the equity investment in the Bank of Shanghai in 1999, said Peter Woicke, IFC executive vice-president.
"We are negotiating with the China Minsheng Banking Corp and other relative departments to acquire a share in the bank," Woicke said.
The IFC also has interest in investing in small and medium-sized commercial banks in China's western areas, he added.
Niu Li, a senior economist with the State Information Centre, said the new wave of equity investment suggests China's financial authorities strictly abide by its promise to gradually open the banking sector after the country entered the World Trade Organization (WTO).
"Equity investment will be one of the major ways for foreign banks to enter China's financial market in the early stage of opening," Niu said.
An earlier report said the Shanghai-based Bank of Communications (BoComm) - the fifth largest Chinese bank in term of sheer size and the biggest shareholding bank in the country - is preparing to allow two foreign institutional investors to take control of 15 percent of its stake.
However, Niu said, in the short term, similar deals will not fall upon the "Big-Four" of the country's financial sector - Bank of China, China Construction Bank, the Industrial and Commercial Bank of China and Agricultural Bank of China.
He noted the banking sector is one of the industries that will bear the brunt of the impact of WTO entry.
By introducing foreign financial institutions as equity owners, Chinese banks are expected to obtain first-class management expertise to help them cope with the mounting competition, he said.
The foreign shareholders, in turn, will gain first-hand knowledge of China's banks, enterprises and the economy, crucial for a bank's operation in a foreign country.
(China Daily November 29, 2001)
