China's Big Four state banks are hoping to invite foreign investors to help streamline their operation -- but apparently not at the expense of national financial safety, officials and economists said.

Chief banking regulator Liu Mingkang said Monday that foreign investors should hold a minimum of 5 percent stake at a Chinese bank, and are forbidden to sell that holding in three years in order to "maintain long-term cooperation with Chinese banks and achieve win-win results."

Meanwhile, the China Banking Regulatory Commission (CBRC), with Liu acting as its chairman, stipulates that a single foreign institution holds no more than 20 percent of a Chinese bank; the biggest combined stake for several investors in a bank is limited to 25 percent, leaving the state to be the biggest shareholder.

Yi Xianrong, a prestigious financial expert with the Chinese Academy of Social Sciences, told Xinhua he believes the entry of strategic investors will bring few financial risks.

"China is ready in terms of rules and regulations," he said.

In the mind of foreign banks, they come to China to cash in on its booming economy and markets after already taking consideration of business risks, he said. "A foreign investor is neither angel nor devil."

Yi's comments were echoed by Zhang Xuechun with the Asian Development Bank. She said worries about China's financial safety actually arise from the fact that foreign banks will be allowed to do renminbi-denominated business as of 2007 under a commitment made by China to the World Trade Organization.

But foreign banks' yuan business should first target clients arriving in China from their own countries, Zhang said, adding she believes no big pressure will be exerted on Chinese banks in at least three years after the country's financial market is liberalized.

But China does hope foreign investors can help overhaul its fragile financial system.

Liu Mingkang told Monday's press conference, held by the Information Office of the State Council, that it will be a "very arduous task" to transform China's state banks into "real commercial banks."

In the past, Liu said, the 100 percent state ownership tended to divert state banks from normal commercial operation, making it difficult for them to establish sound corporate governance.

China had to set up four asset management companies in 1999 to manage as much as 1.4 trillion yuan (about 170 billion US dollars) of non-performing loans -- largely including reckless government-ordered lending to state-owned enterprises -- transferred from the Big Four.

The four major state banks are the Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BOC) and China Construction Bank (CCB). They account for a market share of more than 50 percent.

Foreign investors will form a "joint interest group" with their Chinese partners, sharing both benefits and risks, once if their investment is poured in, Liu said. "They will naturally take good care of the stakes of China while managing their own."

Foreign investors now hold stakes at both the CCB and BOC, and Liu revealed the ICBC, China's biggest bank assets-wise, is "actively" talking to potential investors. The CCB took the lead to sell shares to public investors in Hong Kong on Oct. 27, Liu denied the widespread allegation that the CCB's initial public offering price -- 2.35 Hong Kong dollars (30.3 US cents) per share -- was too low and thus sacrificed state-owned assets.

"The management and services are different now. My feeling is that we are always monitored by outsiders," a CCB manager told Xinhua.

On Monday, Liu bypassed a journalist's question on whether China refused a stake of Temasek Holdings Ptd Ltd., the investment arm of the Singaporean government, in the BOC, saying cooperation should be based on their own intentions.

But he said a single foreign financial institution should invest in no more than two Chinese banks to "avoid interest conflicts and market monopoly."

Temasek has already invested in the CCB and China Minsheng Banking Corporation.

Source: Xinhua