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Last Updated: Friday, 17 June, 2005, 10:02 GMT 11:02 UK
Bank of America invests in China
A man withdrawing money from an ATM of China Construction Bank
China Construction Bank has more than 14,000 branches
Bank of America has become the latest foreign firm to buy into China's fast- expanding banking sector, acquiring a 9% stake in China Construction Bank.

It will pay 24bn yuan ($3bn;1.5bn) for a stake in China's second-biggest bank - the largest foreign bank deal yet.

HSBC and Citigroup are among the global firms to have bought stakes in Chinese banks ahead of their opening to full foreign competition by the end of 2006.

Chinese banks have huge potential for growth but have been hit by corruption.

Poor risk

"It makes sense, if you are looking to tap into economic growth, to consider an investment in China," said Kenneth Lewis, Bank of America's chairman and chief executive officer.

It makes sense if you are looking to tap into economic growth to consider an investment in China
Kenneth Lewis, Bank of America

China's banking sector has suffered from a poor risk profile in recent years and the US bank will provide its Chinese counterpart with advice on developing credit cards and improving its risk management.

Its chairman Guo Shuqing said the relationship with its US peer would help it make its business more customer focused.

Bank teller counting yuan
China gives foreign firms access to $1.5 trillion of personal savings

Investment limits

The Chinese government has encouraged limited foreign investment in banks as a way of helping to strengthen the finance sector.

Under current regulations, foreign companies can hold just 25% of a bank's shares with an individual bank limited to owning a 19.9% stake.

Bank of America's agreement with Construction Bank, which has more than 14,000 branches, gives it the right to increase its stake to 19.9% at any time over the next five years.

Foreign companies have been positioning themselves to take advantage of the opening of China's banking sector to full competition, a precondition of China's admission to the World Trade Organization (WTO).

Earlier this year, Dutch bank ING Group bought a 19.9% stake in Bank of Beijing while HSBC has a 20% stake in Bank of Beijing after concluding a $1.75bn deal last August.

Citigroup, the Commonwealth Bank of Australia, Standard Chartered and the Bank of Nova Scotia also own shares in Chinese firms.

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