Zhang said his bank has reached an agreement with the German bank Bausparkasse Schwaebisch Hall to establish a joint venture in Tianjin and the Chinese partner will hold a majority stake.

The joint-venture bank will be mainly engaged in the mortgage business but has yet to be approved by the People's Bank of China, Zhang said.

"The new bank will be approved soon," he said. But he gave no further details.

Niu Li - a senior economist with the State Information Centre - said the probable establishment of the joint-venture bank suggests that China's financial authorities are strictly abiding by their promises to gradually open up the banking sector now that the country is in the World Trade Organization (WTO).

Zhang Liqun, a senior researcher with the Development Research Centre under the State Council, said the joint-venture bank, if approved, will be another major breakthrough in China's opening of the banking sector.

In the past year, foreign banks' participation in China's banking industry has been mainly through direct investment.

Last December, the International Finance Corporation (IFC), the World Bank's private-sector arm, signed an agreement with the Bank of Shanghai to hold an 8 per cent share of the local bank.

In November, the corporation signed a subscription agreement with Nanjing City Commercial Bank to invest US$27 million in the small shareholding bank in East China's Jiangsu Province.

The corporation then became the third largest shareholder of the Nanjing bank by holding a 15 per cent stake in it.

Peter Woicke, the IFC's executive vice-president, said: "The new investment represents the IFC's continued effort to support the development of the non-State banking sector in China.

"We are now negotiating with the China Minsheng Banking Corporation and other relevant departments to acquire a share in the bank," Woicke said.

The IFC is also talking with small and medium-sized commercial banks in China's western areas, he said.

Niu said that the banking sector is one of the industries that will bear the brunt of the impact of China's WTO entry.

By introducing foreign financial institutions as equity owners, Chinese banks are expected to obtain first-class management expertise to help them survive the mounting competition, he said.

Foreign shareholders, in turn, will gain first-hand knowledge of China's banks, enterprises and economy, which are crucial for a bank's operation in a foreign country.

(China Daily February 9, 2002)