The China Banking Regulatory Commission (CBRC) Monday unveiled a regulation governing equity investment by foreign financial institutions in their Chinese counterparts.

The regulation aims to increase the predictability and transparency of policy in an area of growing foreign interest, it said.

"In recent years... foreign capital demonstrated a fairly strong desire to buy into Chinese financial institutions,'' a CBRC spokesman said. And the commission realized that "foreign capital can play an active role in improving the capital adequacy situation as well as management of Chinese banks.''

The regulation raised the ceiling on equity stake by a single foreign financial institutions to 20 per cent, from 15 per cent previously.

Foreign financial institutions that want to buy an equity stake in a Chinese commercial bank will need to have at least US$10 billion in total assets. Those eyeing a stake in credit co-operatives or other non-banking financial institutions are required to have US$1 billion in assets.

CBRC Chairman Liu Mingkang said last week that China encourages foreign investors to participate in the nation's banking reform and restructuring drive.

A reform package for the four State-owned commercial banks, which hold more than half of the nation's banking assets, includes moves to usher in foreign strategic investors before they proceed to list on stock markets, government officials have said.

Prior to the promulgation of the regulation, China had allowed five joint-stock and city commercial banks to sell their equity shares to foreign investors, but only under the 15 per cent single-investor ceiling.

Liu has said such foreign investments have played a noticeable positive role in helping their Chinese partners improve the equity structure and integrate their management method with international best practices.

The International Finance Corporation, a subsidiary of the World Bank, made a number of helpful suggestions to the Nanjing City Commercial Bank after it bought a 15 per cent stake of the regional lender.

The Nanjing bank is expected to become the first of China's more than 100 city commercial banks to list on the stock market next year.

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