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Beijing keen for foreign banks to buy stakes in northeastern Chinese lenders

China's banking regulator said it will provide "active consideration and prior approval" for overseas banks wanting to buy stakes in lenders based in the country's northeast.

The China Banking Regulatory Commission is also encouraging foreign banks to set up branches and expand their businesses in the northeastern provinces of Liao-ning, Jilin and Heilongjiang, cice chairman Tang Shuangning (唐雙寧) said in a conference.

"All this is in line with government's policy to rejuvenate the colony in China's northeast," Tang said, according to a transcript of the speech he made to the conference in Dalian, the capital of Liaoning.

Banks globally are jostling for position in China, targeting lending, credit card, insurance and fund management businesses as the country prepares to remove curbs at the end of 2006 in line with WTO rules. When China joined the organization in December 2001 it agreed to lift restrictions by the end of 2006 that prevent overseas banks from conducting retail business in the yuan.

HSBC Holdings Plc, Europe's biggest bank by market value, last month bought a 19.9 percent stake in Bank of Communications (交通銀行), China's fifth-largest lender, adding to stakes it had bought in Bank of Shanghai (上海銀行) in 2001 and Ping An Insurance Co (平安保險).

Citigroup Inc, the world's biggest financial services company, owns 8.3 percent of Shanghai Pudong Development Bank Co (上海浦東發展銀行)

Standard Chartered Plc, which makes two-thirds of its profit in Asia, is also seeking to buy a stake in a Chinese lender.

China has the world's most vulnerable banks, according to Standard & Poor's in a July report. The agency estimates that a bailout of the banking industry would cost about US$650 billion, or 40 percent of the country's forecast GDP this year.

Banks in China are trying to cut their non-performing loans, a legacy problem from lending to unprofitable state-owned enterprises for five decades.

Non-performing loans as a ratio of total loans for local banks in the northeast region is 31.44 percent, higher than the country's average of 16.78 percent, Tang said. Last month, the bad loan ratio in Jilin was as high as 36.65 percent, compared with 26.9 percent in Liaoning and 35.51 percent in Heilongjiang, he said.

The northeast, China's largest and oldest industrial base, has suffered from layoffs at state-owned companies.
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