China Focus: Bank of America takes stake in Construction Bank

The Bank of America said in Beijing Friday that it will invest 2.5 billion US dollars in China Construction Bank (CCB), -- and earmark an additional 500 million US dollars when the CCB goes public later this year as scheduled --for a roughly nine percent stake in the country's leading propertylender.

This was the largest sum of foreign investment poured into a Chinese company by a single foreign company, an insider said.

The Bank of America also received an option to increase its stake in the coming few years to 19.9 percent at the price of the shares in the CCB's initial public offering, approaching to the ceiling set by China's banking regulator for investment by a single foreign bank.

The deal was signed in Beijing by the Bank of America board chairman Kenneth D. Lewis and China Construction Bank chairman GuoShuqing.

The partnership between the two banks shows that China's state-owned commercial banks have moved in a "very important" direction in the throes of reform, Qin Chijiang, a financial professor of the Central University of Finance and Banking said in an interviewwith Xinhua.

The 2.5 billion dollars are affordable for the Chinese government and even a domestic enterprise. "If we are pursuing themoney, it is not necessary to invite a foreign investor," he said.

"Instead, what a foreign partner will bring is more sophisticated management for a domestic bank. Bank of America, as a shareholder, will prod the CCB to exercise scientific decisions and promote transparency," Qin added.

Their agreement is a "good thing" as it shows that renovation of state banks was fruitful and attracted foreign investors, he said.

China is in the midst of overhauling its state banks, includingthe CCB, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of China, ahead of the World Trade Organization-mandated opening of the financial market to foreign rivals by the end of 2006.

In line with their agreement, the Bank of America will provide "strategic assistance" for the CCB in many areas, including corporate governance, risk management, information technology, financial management and human resources management.

The third largest US banking group will hold a seat in the CCB's board of directors and send about 50 people to the CCB to provide consultancy services.

Guo Shuqing hailed cooperation between the two banks as a "win-win" result.

The Bank of America is an example to learn from for his bank inestablishing a commercial bank culture "with customers as the center and market as the orientation", he told the press.

Chang Zhenming, CCB's president, told Xinhua he believes that the partnership will turn the CCB into a modern commercial bank with strong competitiveness globally.

Lewis echoed their remarks, saying that the partnership will create long-term values for both sides, backed by China's 1.3 billion population and the fastest-growing economy. He rendered support for the timetable of CCB's listing.

According to Guo, CCB is trying to sell shares to the public this year, but the initial public offering also depends on market factors.

CCB's net assets soared to 194.7 billion yuan (23.5 billion dollars) by the end of last year. Its major business indices, suchas return on assets and bad debt ratio, all met regulatory requirements.

Source: Xinhua