## _wp06292

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### Introduction
- Objective: replace the monobank system with a multilayered system separating commercial lending and central banking functions to improve intermediation of China’s large private sector savings.
- By end-2005, three of the four major state-owned commercial banks (SCBs) had selected major foreign financial institutions as strategic investors with minority ownership stakes and completed initial public offerings (IPOs).
- Since June 2004, foreign investors bought over US$17 billion worth of shares in Chinese banks.
- Late 2006 transaction: consortium led by Citigroup (including domestic participants) acquired an approximately 85 percent stake in the Guangdong Development Bank for about $3.1 billion.

### Foreign banks in China: scale, restrictions, and entry phases
- Scale as of end-September 2006:
  - Foreign-funded banks accounted for 1.8 percent of total banking assets.
- Restrictions limiting penetration:
  - Restrictions on RMB-denominated operations, especially services to individuals.
  - Regulatory requirements under the China Bank Regulatory Commission (CBRC).
- Three distinct entry phases:
  - 1996–2001: isolated transactions with niche players; foreign portfolio investors mainly multilateral financial institutions with no active operational role.
  - 2001–2004: WTO negotiations concluded; entry increased and limited to joint-stock commercial banks and city banks in major cities.
  - Late 2004–present: intensified interest as reforms in large state-owned banks accelerated and government permitted higher foreign ownership.

### Major strategic investments and ownership rules
- Major strategic entries since 2004:
  - HSBC stake in Bank of Communications (BoCom) in 2004.
  - Bank of America (BOA) in China Construction Bank (CCB).
  - Consortium led by Royal Bank of Scotland (RBS) in the Bank of China (BOC).
  - Goldman Sachs–led investor group in the Industrial and Commercial Bank of China (ICBC).
- Investment totals:
  - Since June 2005, foreign investors have invested or committed over US$14 billion in the three large state-owned commercial banks.
- Ownership limits:
  - Ownership by a single foreign investor limited to 20 percent.
  - Combined share of all foreign investors in one bank limited to 25 percent.
- Structure and governance implications:
  - Ownership shares typically between 9 and 20 percent.
  - Strategic investors have no management responsibility but can nominate 1–2 board members out of boards averaging more than 15 members.
  - Direct investment safeguards vary (examples: BOA covered only for restatement of 2004 financials; RBS and Goldman Sachs against decline of book value below end-2004 and end-2005 book value, respectively).
  - Strategic cooperation often focused on non-core areas: credit cards, wealth management, investment banking, information technology.

### Box 1 — WTO commitments and regulatory requirements (Opening the banking sector on December 11, 2006)
- WTO commitment: full opening of banking sector to foreign bank participation, without geographic or client restrictions, effective December 11, 2006.
- From December 11, 2006:
  - Foreign banks and branches permitted a similar range of financial services as Chinese banks and to be treated and regulated the same way.
  - Geographic restrictions for conducting local currency business were to be lifted.
  - All non-prudential market access constraints on foreign banks restricting ownership, operation, and juridical form, including internal branching and licenses, would be lifted.
- Implementing regulation:
  - Regulations for the Administration of Foreign-Funded Banks issued in November 2006.
- Requirements to offer full domestic currency services to individuals:
  - Must establish an incorporated affiliate in China with minimum capital of RMB 1 billion.
  - Each branch must have a minimum capital of RMB 100 million.
  - Foreign financial institutions applying to engage in local currency business must have three years of business operation experience in China and have been profitable for two consecutive years prior to applying.

### Foreign participation in smaller banks, nonbank investors, and pricing outcomes
- Foreign strategic investor participation in smaller banks (selected examples): Bank of Communications, Shenzhen Development Bank, Xi’an City Commercial Bank, China Minsheng Banking Corporation, Huaxia Bank, Bohai Bank, Bank of Beijing, Hangzhou City Commercial Bank.
- Nonbank and large financial investor participation:
  - Temasek invested approximately US$4.5 billion in CCB and BOC (directly and in IPOs).
  - China’s National Social Security Fund invested over $1 billion in BOC shares.
- Pricing outcomes and valuation multiples:
  - BoComm shares trade at about 300 percent higher than pre-IPO price paid by foreign strategic investors.
  - CCB’s IPO price is currently at about 170 percent relative to pre-IPO prices paid by foreign investors.
  - BOC’s IPO price is currently at about 160 percent relative to pre-IPO prices paid by foreign investors.
  - Specific multipliers: investors bought pre-IPO interests in CCB at about 1.15 to 1.19 times book value; CCB IPO at about 2.5 times book value.
  - BOC IPO pricing about 2.1 times book value; pre-IPO prices paid by strategic investors about 1.17 times book value.

### Effects and limits of foreign strategic investors on bank performance
- Observed contributions:
  - Increased bank capital (noting some investment went to SAFE Investments as foreign investors partly bought existing shares).
  - Provided credibility to launch relatively large IPOs.
  - Induced improvements in corporate governance and management via some board seats occupied by foreign nominees.
  - Provided limited technical assistance.
- Limitations and concerns:
  - Strategic investor ownership shares are relatively small and management involvement minimal, leaving unclear incentives and opportunities to improve core operations and credit risk management.
  - Many strategic arrangements focus on non-core operations (credit cards, wealth management), which can be lucrative irrespective of the bank’s overall performance and may weaken incentives to improve core commercial banking business.
- Policy advisories for authorities:
  - Ensure no value is lost in side cooperation agreements, particularly given public listings and legal/reputation risks.
  - Ensure foreign investors have strong incentives to engage in improving core banking business.

### Lessons from international experience
- General findings:
  - International studies generally find foreign bank entry associated with improved efficiency.
  - U.S. evidence: relaxed branching restrictions linked to increased credit availability, enhanced bank efficiency, and faster economic growth (Jayartne and Strahan, 1996 & 1998).
  - Emerging market evidence: foreign entrants tend to be more efficient than incumbents; increased competition appears to improve overall bank efficiency (Barajas, Steiner, and Salazar, 2000; Demirguc-Kunt, Laeven, and Levine, 2004).
- Concerns and mixed results:
  - In some poor countries, stronger foreign bank presence associated with less credit to the private sector and slower credit growth (Detragiache, Tressel, and Gupta, 2006); no adverse effects found for emerging market economies.
  - Foreign banks in developing countries often realize higher interest margins and higher profitability than domestic banks, reflecting a technological edge; in industrial countries, foreign banks tend to be less profitable.
- Implication for China:
  - Foreign banks can bring benefits if appropriate incentives and opportunities are created.
  - China must continue reforms in internal control, risk management, and corporate governance irrespective of foreign participation.

### Box 2 — Selected country experiences (high-level findings)
- Malaysia:
  - Foreign banks had relatively low non-performing loans and relatively high profitability and capitalization; these indicators even improved during the crisis.
  - Domestic banks concentrated loans in the property sector and share-purchase business where most losses occurred.
  - Foreign banks did not abandon the Malaysian market during the crisis; their lending and deposits contracted less than domestic banks.
- Korea:
  - Foreign bank branches displayed stronger overall financial conditions and performance than domestic banks.
  - Greater foreign participation likely contributed to increased banking competition and reduced profits via lower non-interest income from FX and derivatives trading.
- Central and Eastern Europe:
  - Foreign involvement helped align systems with international standards in capital allocation, risk management and corporate governance during privatization and EU membership preparation.
  - Unsatisfactory domestic privatization led some authorities to rely on foreign resources to recapitalize banking sectors.
- Latin America:
  - Mixed experience: Argentina crisis cited for “cut and run”; Uruguay example where foreign banks supported authorities’ measures and helped avoid a full-blown banking crisis.
  - Behavior of foreign banks during crises depends on actions of local authorities.

### Conclusions on foreign investment in China’s banks
- The recent wave of foreign investment and prospects of further opening under the WTO agreement are distinct elements in China’s banking reform; foreign banks likely to play an increasingly important role.
- Contrast with other countries:
  - In most other countries, foreign bank entry took the form of direct takeover or majority shareholding.
  - In China, foreign investments have been minority shareholdings with very limited management involvement due to rules restricting foreign ownership to relatively small minority shares.
- Policy lesson:
  - China appears well positioned to benefit from further opening to foreign investors.
  - Main lesson of international experience: foreign banks can bring important benefits if appropriate incentives and sufficient opportunities are created.
  - Creating incentives and opportunities would help the financial system reap benefits of greater foreign participation and ensure foreign investors bear the full risks and rewards of lending decisions.
- Research gaps and future focus:
  - Impact foreign investors have had on core operations of Chinese banks.
  - Effective degree of opening of the banking sector in different product lines and regions.
  - Impact that potentially greater foreign bank presence may have on banking market conditions and efficiency.
- Timing caveat:
  - Entry of major foreign banks as minority investors is relatively recent and full opening is ongoing; some time will be needed before more definite experience with the role of foreign banks in China can be identified.

### Table summaries (selected exact figures)
- Industrial and Commercial Bank of China ($827 billion)
  - Foreign investors: Goldman Sachs, Allianz, and American Express.
  - 8.5 percent (combined) for $3.8 billion (of which Goldman Sachs $2.58 billion).
  - Goldman Sachs to nominate one Board member, no management responsibility.
  - Technical assistance: Risk management, corporate and investment banking, credit cards (Amex), and insurance (Allianz).
  - Investment safeguards: Compensation only if book value declines below end-2005 level prior to the IPO.
  - Listing Status: IPO in Hong Kong and Shanghai in October 2006, raised almost $22 billion.
- Agricultural Bank of China ($608 billion)
  - Foreign Investor: None.
- Bank of China ($587 billion)
  - Foreign investors: RBS-led consortium, 9.6 percent for $3.0 billion (pre-IPO); UBS, 1.6 percent for $492 million; Temasek, 4.8 percent for $1.5 billion.
  - RBS to nominate one Board member, no management responsibility.
  - Technical assistance: Corporate governance, risk management, and IT.
  - Investment safeguards: Compensation if book value through end-2007 declines below book value at end-2004.
  - Listing Status: Raised $11.2 billion in Hong Kong and started trading on June 1, 2006.
- China Construction Bank ($568 billion)
  - Foreign investors: Bank of America, 8.5 percent for $3 billion; Temasek 6.0 percent for $2.5 billion.
  - Board seats: One Board member (Bank of America); no management responsibility.
  - Technical assistance: Approximately 50 personnel to assist in risk management, governance, consumer banking.
  - Listing Status: IPO in Hong Kong, started trading on October 27, 2005. Total funds raised $9.2 billion.
- Bank of Communications ($176 billion)
  - Foreign investor: HSBC, 19.9 percent for $1.75 billion.
  - Board Representation: Two Board members; one senior manager (vice president) and management of the credit card business.
  - Technical assistance: At least 150 hours of technical assistance each year; eight HSBC experts working in BoComm with three more to arrive in 2006.
  - Listing Status: IPO in Hong Kong in June 2005, raising $2.16 billion.
- Selected smaller-bank investments (exact figures):
  - Shanghai Pudong Development Bank: Citigroup, 4.6 percent for $72.5 million; increase to 19.99 percent agreed in Feb 2006.
  - China Minsheng Banking Corporation: IFC, 1.1 percent at $23.5 million; Temasek, 4.6 percent for $100 million.
  - Shenzhen Development Bank: Newbridge, 17.9 percent at $149.2 million; General Electric (GE), 7.3 percent for $100 million.
  - Industrial Bank of Fujian: Hang Seng Bank, 16 percent at $208 million; IFC, 4 percent at $52 million; GIC, 5 percent at $65 million.
  - Guangdong Development Bank: Citigroup-led consortium, approximately 85 percent for $3.1 billion.
  - Bohai Bank: Standard Chartered, 19.9 percent at $123 million.
  - Bank of Beijing: ING Groep NV, 19.9 percent at $215 million; IFC, 5 percent for $54 million.
  - Hangzhou City Commercial Bank: Commonwealth Bank of Australia, 19.9 percent at $78 million.
  - Nanjing City Commercial Bank: IFC, 15 percent for $20 million; BNP Paribas, 19.2 percent.
- Note: There were 112 city commercial banks at end-2004.

*Source: _wp06292 - References..............................................................................................................*

### References..............................................................................................................

### _wp06292 - References..............................................................................................................

### Introduction
- Banking reforms aim to improve intermediation of China’s large private sector savings by replacing the monobank system with a multilayered system separating commercial lending and central banking functions.
- By end-2005, three of the four major state-owned commercial banks (SCBs) had selected major foreign financial institutions as strategic investors with minority ownership stakes and completed initial public offerings (IPOs).
- Since June 2004, foreign investors bought over US$17 billion worth of shares in Chinese banks.
- A recent (late 2006) transaction: a consortium led by Citigroup (including domestic participants) acquired an approximately 85 percent stake in the Guangdong Development Bank for about $3.1 billion.

### Foreign banks in China: scale, restrictions, and entry phases
- As of end-September 2006, foreign-funded banks accounted for 1.8 percent of total banking assets.
- Direct foreign-bank penetration remained limited by restrictions on RMB-denominated operations, especially services to individuals, and by regulatory requirements under the China Bank Regulatory Commission (CBRC).
- Three distinct phases of foreign investor entry:
  - 1996–2001: isolated transactions with niche players; foreign portfolio investors mainly multilateral financial institutions with no active operational role.
  - 2001–2004: WTO negotiations concluded; entry increased and limited to joint-stock commercial banks and city banks in major cities.
  - Late 2004–present: intensified interest as reforms in large state-owned banks accelerated and government permitted higher foreign ownership.

### Major strategic investments and ownership rules
- Since 2004, strategic investors entered in four of the largest five banks:
  - HSBC stake in Bank of Communications (BoCom) in 2004.
  - Bank of America (BOA) in China Construction Bank (CCB).
  - A consortium led by Royal Bank of Scotland (RBS) in the Bank of China (BOC).
  - Goldman Sachs–led investor group in the Industrial and Commercial Bank of China (ICBC).
- Investment totals: since June 2005, foreign investors have invested or committed over US$14 billion in the three large state-owned commercial banks.
- Ownership limits specified: ownership by a single foreign investor is limited to 20 percent, while the combined share of all foreign investors in one bank is limited to 25 percent.
- Structure of strategic investments:
  - Ownership shares typically between 9 and 20 percent.
  - Strategic investors have no management responsibility but can nominate 1–2 board members out of boards averaging more than 15 members.
  - Direct investment safeguards vary (examples: BOA covered only for restatement of 2004 financials; RBS and Goldman Sachs against decline of book value below end-2004 and end-2005 book value, respectively).
  - Strategic investors often enter cooperation in non-core areas (notably credit cards, wealth management, investment banking, information technology).

### Box 1 — WTO commitments and regulatory requirements (Opening the banking sector on December 11, 2006)
- WTO commitment: full opening of banking sector to foreign bank participation, without geographic or client restrictions, effective December 11, 2006.
- From December 11, 2006:
  - Foreign banks and branches permitted a similar range of financial services as Chinese banks and to be treated and regulated the same way.
  - Geographic restrictions for conducting local currency business were to be lifted.
  - All non-prudential market access constraints on foreign banks restricting ownership, operation, and juridical form, including internal branching and licenses, would be lifted.
- Regulations for the Administration of Foreign-Funded Banks issued in November 2006 to implement WTO commitments.
- Requirements for foreign banks to offer full domestic currency services to individuals:
  - Must establish an incorporated affiliate in China with minimum capital of RMB 1 billion.
  - Each branch must have a minimum capital of RMB 100 million.
  - Foreign financial institutions applying to engage in local currency business must have three years of business operation experience in China and have been profitable for two consecutive years prior to applying.

### Foreign participation in smaller banks, nonbank investors, and pricing outcomes
- Foreign strategic investors entered smaller banks (examples): Bank of Communications, Shenzhen Development Bank, Xi’an City Commercial Bank, China Minsheng Banking Corporation, Huaxia Bank, Bohai Bank, Bank of Beijing, Hangzhou City Commercial Bank.
- Motivations for foreign interest in smaller banks included strong Chinese economic growth, large banking sector relative to the economy, banking-sector reform progress, and the “global balance sheet” argument (technology returns and marginal costs).
- Nonbank and large financial investors also participated:
  - Temasek invested approximately US$4.5 billion in CCB and BOC (directly and in IPOs).
  - China’s National Social Security Fund invested over $1 billion in BOC shares.
- Pricing outcomes:
  - BoComm shares trade at about 300 percent higher than pre-IPO price paid by foreign strategic investors.
  - CCB’s IPO price is currently at about 170 percent relative to pre-IPO prices paid by foreign investors.
  - BOC’s IPO price is currently at about 160 percent relative to pre-IPO prices paid by foreign investors.
  - Specific multipliers: investors bought pre-IPO interests in CCB at about 1.15 to 1.19 times book value; CCB IPO at about 2.5 times book value. BOC IPO pricing about 2.1 times book value; pre-IPO prices paid by strategic investors about 1.17 times book value.

### Effects and limits of foreign strategic investors on bank performance
- Observed contributions from foreign investors to Chinese banks:
  - Increased bank capital (though part of investment went to SAFE Investments as foreign investors partly bought existing shares).
  - Provided credibility to launch relatively large IPOs.
  - Induced improvements in corporate governance and management via some board seats occupied by foreign nominees.
  - Provided limited technical assistance.
- Limitations and concerns:
  - Strategic investor ownership shares are relatively small and management involvement minimal, leaving unclear incentives and opportunities to improve core operations and credit risk management.
  - Many strategic arrangements focus on non-core operations (credit cards, wealth management), which can be lucrative irrespective of the bank’s overall performance and may weaken incentives to improve core commercial banking business.
  - Authorities should ensure: (i) no value is lost in side cooperation agreements, particularly given public listings and legal/reputation risks; and (ii) foreign investors have strong incentives to engage in improving core banking business.

### Lessons from international experience
- International studies generally find foreign bank entry associated with improved efficiency:
  - Examples include U.S. evidence where relaxed branching restrictions are linked to increased credit availability, enhanced bank efficiency, and faster economic growth (Jayartne and Strahan, 1996 & 1998).
  - In emerging market and developing economies, foreign entrants tend to be more efficient than incumbents and increased competition appears to improve overall bank efficiency.
  - Studies (Barajas, Steiner, and Salazar, 2000; Demirguc-Kunt, Laeven, and Levine, 2004) find a positive relationship between foreign bank entry and intermediation efficiency.
- Concerns and mixed findings:
  - In some poor countries, stronger foreign bank presence is associated with less credit to the private sector and slower credit growth (Detragiache, Tressel, and Gupta, 2006), but no adverse effects found for emerging market economies.
  - Foreign banks in developing countries often realize higher interest margins and higher profitability than domestic banks, reflecting a technological edge; in industrial countries, foreign banks tend to be less profitable.
- Implication for China:
  - While foreign banks can bring benefits if appropriate incentives and opportunities are created, China must continue reforms in internal control, risk management, and corporate governance irrespective of foreign participation.

*Source: _wp06292 - References..............................................................................................................*

### Box 2. Foreign Investment in Domestic Banks: Selected Country Experience

### Box 2. Foreign Investment in Domestic Banks: Selected Country Experience

### Selected country experiences
- Malaysia
  - Foreign banks had relatively low non-performing loans and relatively high profitability and capitalization.
  - These indicators even improved during the crisis.
  - Domestic banks had a large concentration of loans in the property sector and the share-purchase business, where most losses occurred during the crisis.
  - Foreign banks did not abandon the Malaysian market during the crisis; their lending and deposits contracted less than domestic banks, possibly because depositors perceived them as safer and switched deposits to them.
- Korea
  - Early experience suggests overall financial conditions and performance of foreign bank branches is stronger than those of domestic banks.
  - Greater foreign bank participation likely contributed to increased banking competition, evidenced by reduced non-interest income from the trading of foreign currency and derivatives, and thereby to reduced profits.
- Central and Eastern Europe
  - Growing foreign involvement helped align financial systems with international standards in capital allocation, risk management and corporate governance.
  - Major recipients of financial sector FDI during privatization and preparations for EU membership in the second half of the 1990s.
  - In some instances (Poland and the Czech Republic), unsatisfactory results of early domestic privatization led authorities to rely on foreign resources to recapitalize the banking sector and permit foreign ownership.
- Latin America
  - Mixed experience.
  - Argentina crisis: several international banks reconsidered expansion and considered reducing presence—example often cited for the “cut and run” hypothesis (foreign banks leave when faced with difficulties).
  - Uruguay: foreign banks were supportive of the authorities’ package of measures, helping to avoid a full-blown banking crisis.
  - Conclusion: behavior of foreign banks during crises depends on the actions of local authorities.

### Conclusions on foreign investment in China’s banks
- Recent wave of foreign investment in China’s banks and prospects of further opening under the WTO agreement are distinct elements in China’s banking sector reform; foreign banks likely to play an increasingly important role.
- International comparison:
  - In most other countries, foreign bank entry took the form of direct takeover or majority shareholding.
  - In China, foreign investments have been minority shareholdings with very limited management involvement, mainly because current rules restrict foreign ownership to relatively small minority shares.
  - Investments are strategic for foreign banks as a way to enter the Chinese market, but so far they have been important portfolio investors with some side activities.
- Policy lesson:
  - China appears well positioned to benefit from further opening to foreign investors.
  - Main lesson of international experience: foreign banks can bring important benefits if appropriate incentives and sufficient opportunities are created.
  - Creating incentives and opportunities would help the financial system reap benefits of greater foreign participation and ensure foreign investors bear the full risks and rewards of lending decisions.
- Research gaps and future focus:
  - Impact foreign investors have had on core operations of Chinese banks.
  - Effective degree of opening of the banking sector in different product lines and regions.
  - Impact that potentially greater foreign bank presence may have on banking market conditions and efficiency.
- Timing:
  - Entry of major foreign banks as minority investors is relatively recent and full opening is ongoing; some time will be needed before more definite experience with the role of foreign banks in China can be identified.

### Table 1 — China: Foreign Investors in the Five Largest Banks (selected entries and exact figures)
- Industrial and Commercial Bank of China ($827 billion)
  - Foreign investors: Goldman Sachs, Allianz, and American Express
  - 8.5 percent (combined) for $3.8 billion (of which Goldman Sachs $2.58 billion)
  - Goldman Sachs to nominate one Board member, no management responsibility.
  - Technical assistance: Risk management, corporate and investment banking, credit cards (Amex), and insurance (Allianz).
  - Investment safeguards: Compensation only if book value declines below end-2005 level prior to the IPO.
  - Listing Status: IPO in Hong Kong and Shanghai in October 2006, raised almost $22 billion.
- Agricultural Bank of China ($608 billion)
  - Foreign Investor: None
  - Board Representation and Management Responsibility: --
  - Technical Assistance: --
  - Investment Safeguards, Specific Cooperation: --
  - Listing Status: --
- Bank of China ($587 billion)
  - Foreign investors: Consortium led by the Royal Bank of Scotland, 9.6 percent for $3.0 billion (all data pre-IPO); UBS, 1.6 percent for $492 million; Temasek, 4.8 percent for $1.5 billion
  - RBS to nominate one Board member, no management responsibility.
  - Technical assistance: Corporate governance, risk management, and IT.
  - Specific cooperation: Cooperation with RBS in wealth management, credit cards, and corporate banking; partnership with UBS in investment banking and securities.
  - Investment safeguards: Compensation if book value through end-2007 declines below book value at end-2004. Credit cards: 50:50 management of a business unit with RBS, when a separate joint venture is established, RBS will have 49 percent ownership.
  - Listing Status: Raised $11.2 billion in Hong Kong and started trading on June 1, 2006.
- China Construction Bank ($568 billion)
  - Foreign investors: Bank of America, 8.5 percent for $3 billion; Temasek 6.0 percent for $2.5 billion
  - Board Representation and Management Responsibility: One Board member and no management responsibility (Bank of America). Temasek could nominate one Board member, but no plans to do so now; no management responsibility.
  - Technical assistance: Approximately 50 personnel to assist in risk management, governance, consumer banking, and other areas.
  - Investment safeguards, specific cooperation: 1000 person/day training in treasury business and other areas. An adjustment of the purchase price if December 2004 financial statements are restated; credit card venture under negotiation. No known adjustment for Temasek.
  - Listing Status: IPO in Hong Kong, started trading on October 27, 2005. Total funds raised $9.2 billion.
- Bank of Communications ($176 billion)
  - Foreign investor: HSBC, 19.9 percent for $1.75 billion
  - Board Representation and Management Responsibility: Two Board members, one on audit committee, the other on personnel and compensation committee. One senior manager (vice president) and management of the credit card business.
  - Technical assistance: At least 150 hours of technical assistance each year, eight HSBC experts are working in BoComm now, three more to arrive in 2006.
  - Investment safeguards, specific cooperation: Credit card business unit set up, with 50:50 representation of BoComm and HSBC managers, to be converted to a Sino-foreign joint venture with 50:50 shares.
  - Listing Status: IPO in Hong Kong in June 2005, raising $2.16 billion.

### Table 2 — Foreign Investors in Smaller Banks (selected entries and exact figures)
- Joint-stock commercial banks (selected)
  - Shanghai Pudong Development Bank: Citigroup, 4.6 percent for $72.5 million. An increase to 19.99 percent was agreed by shareholders in Feb 2006.
  - China Minsheng Banking Corporation: IFC, 1.1 percent at $23.5 million. Temasek, 4.6 percent for $100 million.
  - Shenzhen Development Bank: Newbridge, 17.9 percent, at $149.2 million. General Electric (GE), 7.3 percent share, for $100 million.
  - Huaxia Bank: Deutsche Bank, 9.9 percent [April 2006: may increase holding to 20 percent]. Sal. Oppenheim Jr., 4.1 percent.
  - Industrial Bank of Fujian: Hang Seng Bank, 16 percent at $208 million. IFC, 4 percent at $52 million. GIC, 5 percent at $65 million.
  - Guangdong Development Bank: Citigroup-led consortium, approximately 85 percent for $3.1 billion.
  - Evergrowing Bank: Standard Chartered, 15 percent.
  - Bohai Bank: Standard Chartered, 19.9 percent at $123 million.
- City commercial banks (selected)
  - Bank of Shanghai: HSBC, 8 percent for $62.6 million. IFC, 7 percent for $50.3 million. Shanghai Commercial Bank, 3 percent for $21.6 million.
  - Bank of Beijing: ING Groep NV, 19.9 percent at $215 million. IFC, 5 percent for $54 million.
  - Dalian City Commercial Bank: SHK Financial, 10 percent at $19.3 million.
  - Hangzhou City Commercial Bank: Commonwealth Bank of Australia, 19.9 percent at $78 million.
  - Jinan City Commercial Bank: Commonwealth Bank of Australia, 11.0 percent at $17.3 million.
  - Nanjing City Commercial Bank: IFC, 15 percent for $20 million. BNP Paribas, 19.2 percent.
  - Xian City Commercial Bank: Bank of Nova Scotia, 12.5 percent at $20.2 million. IFC, 12.4 percent at $20.0 million.
- Notes from source:
  - Joint-stock commercial banks have nation-wide license, but branch networks usually confined to the region where they originated. Mostly owned by state-owned enterprises and local governments.
  - City commercial banks have been created by mergers of urban credit cooperatives and their business is restricted to local customers.
  - There were 112 city commercial banks at end-2004.

*Source: Box 2. Foreign Investment in Domestic Banks: Selected Country Experience (_wp06292).*

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