Two Chinese Banks Draw Interest of Foreigners

Foreign banks are planning to take large stakes in China’s second-largest bank and a mid-size regional Chinese lender as they jockey for position ahead of late 2006, when China fully opens its markets to overseas competition.

Royal Bank of Scotland Group announced Thursday a $3.1-billion investment in Bank of China that would give it control of a 10% stake.

The Scottish bank is contributing $1.6 billion of the investment in Bank of China, giving it a direct stake of about 5%. But it would take control of the full 10% on behalf of co-investors Merrill Lynch & Co. and Li Ka-shing, the Hong Kong-based tycoon who controls conglomerate Hutchison Whampoa Ltd.

The deal, subject to regulatory approval, would give the Scottish bank access to a bank with 11,307 branches, 12% of the loan market in mainland China and 14% of the savings market.

Meanwhile, Deutsche Bank and Singapore’s DBS Group plan to buy shares in China’s state-owned Guangdong Development Bank, the China Daily reported. The two foreign banks plan to buy a total of 10 billion shares worth $2.2 billion in the mid-size bank based in southern China, the government-controlled newspaper said.

The report could not be immediately confirmed.

DBS staff in China said they could not comment on their bank’s reported interest in Guangdong Development Bank.

A Deutsche Bank spokeswoman said the German bank was acting as a financial advisor to the Guangdong bank in its restructuring. She would not comment on the reported investment plan. Guangdong Development Bank officials refused to comment.