China seeks foreign investors in banks
(AP)
Updated: 2005-11-03 15:18

SHANGHAI, China (AP) -- China expects foreign investors in its banks to make long-term, strategic investments that will help build up domestic lenders, an industry regulator said, amid reports a $3.1 billion deal between the Bank of China and Singapore's Temasek Holdings may have stalled.

In comments reported by state newspapers Thursday, Tang Shuangning, vice chairman of the China Banking Regulatory Commission, said any foreign strategic investor should take at least a 5 percent stake in a Chinese lender and cannot buy into more than two domestic banks, to prevent conflicts of interest and monopolization.

China's banking regulator views the commitment of any foreign investor to improving the corporate governance and management and risk know-how of the local banks they invest in as crucial, the China Securities Journal and other newspapers cited Tang as saying.

Such an approach would promote a "win-win" form of cooperation, said Tang, whose remarks were also posted on the commission's Web site.

The comments came amid reports that Temasek Holding Pte.'s bid for a 10 percent stake in Bank of China has so far failed to gain approval, although a similar deal with the Royal Bank of Scotland PLC was endorsed.

Bank of China is one of four huge state-owned banks being revamped to improve competitiveness and pare down bad debts as the local banking industry prepares for a full opening to foreign competition next year.

Regulators have encouraged the banks to seek investment and expertise from foreign partners, although total foreign investments in any single bank are limited to 25 percent, with the stake allowed to each investor capped at 20 percent.

Royal Bank of Scotland Group announced it is leading a consortium that includes Merrill Lynch & Co. and Hong Kong tycoon Li Ka-shing in taking a combined 10 percent stake in Bank of China.

UBS AG, Switzerland's biggest bank, has also agreed to invest $500 million for about a 1.6 percent stake.

The Bank of China issued a statement earlier in the week saying the regulatory approval process for the Temasek deal was proceeding "as normal."

However, the Asian Wall Street Journal, citing unnamed people familiar with the situation, reported Thursday that China is concerned that Temasek may be getting "too much too cheap."

Temasek invested $1 billion in China Construction Bank's $8 billion initial public offering, the world's biggest IPO this year. It also has a stake in smaller lender China Minsheng Banking Corp.