Banking giant HSBC has reportedly agreed to take a 20% stake in Shanghai-based Bank of Communications.
Investors are becoming more wary of China's financial sector
The two banks agreed the deal at a board meeting on Sunday, the Asian Wall Street Journal reported, citing a senior Chinese bank regulator.
The stake has an estimated worth of $1bn and, as such, would be the largest
foreign investment into a local bank.
Meanwhile, China's second biggest life insurer, Ping An, part-owned by HSBC, had a muted share debut in Hong Kong.
Ping An has just under a quarter of China's life insurance market, and lends its name and sponsorship to one of China's top football teams, Shenzhen Ping An.
Investors cool down
Ping An's $1.8bn (£990m) flotation is the sixth biggest in the world so far this year.
But its international listing failed to attract as much investor enthusiasm as that of China's insurance market leader, China Life, just over six months ago, partly because China Life has since been investigated by US market regulators.
Ping An's shares closed on Thursday, their first day of trading at HK$10.40, not far above the offer price of HK$10.33 per share.
The price gives Ping An a total market capitalisation of $8.26bn, Reuters news agency reported.
China Life's $3.4bn flotation in December 2003 was the biggest in the world last year. Its president was invited to ring the opening bell on the New York exchange, and the stock soared 27% on its first day.
But allegations that the listed company failed to disclose audit problems at the predecessor firm it was spun out of led to shareholder lawsuits and soured investor enthusiasm for China stocks.
Bank to float?
HSBC has "basically reached agreement" to buy 20% of China's Bank of Communications, the Asia Wall Street Journal quoted Li Fuan, deputy director of China's banking regulatory board as saying.
He said negotiations on the price are continuing.
An HSBC spokesman in London said the bank had no immediate comment to make on the report.
Mr Li reportedly added that Bank of Communications is drawing up plans to sell shares on the Shanghai exchange and may now opt for an overseas listing too.
Bank of Communications ranks just behind China's big four banks. HSBC owns part another second tier player, Bank of Shanghai. HSBC will soon open its tenth own-brand branch in China.
In April, it received a licence to make yuan-denominated loans.
Banking on Chinese shoppers
Local currency business is the next big market for foreign banks in China, which are scrambling to position themselves ahead of 2006, when China is due to open the sector to overseas players under World Trade Organisation treaties.
US banking giant Citigroup bought 5% of Shanghai Pudong Development Bank last year, striking a deal to issue credit cards to Chinese customers.
US private equity firm Newbridge Capital bought 18% of Shenzhen Development Bank this year.
HSBC's shares rose 1.7% in Hong Kong on Thursday.