Citigroup, Hang Seng look at Chinese banks


China must open its banking industry to overseas competition by 2007, under its commitment to join the WTO

Staff and reports

HONG KONG, China (CNN) -- Two overseas banks are in talks to buy minority stakes in Chinese banks, according to reports.

Citigroup is in "advanced negotiations" to buy up to 10 percent of Shanghai's Pudong Development Bank, the Wall Street Journal stated on Wednesday.

Hong Kong's Hang Seng Bank is in preliminary talks to buy 10 percent of Beijing-based Huaxia Bank, the Apple Daily newspaper reported the same day.

China must open its banking sector to full overseas competition by 2007, under its World Trade Organization commitments.

Hang Seng, a subsidiary of global bank giant HSBC, is also in talks to take a stake in China's Ping An Insurance.

HSBC first to buy share

Hang Seng's parent, HSBC, became the first overseas commercial bank to buy into China's banking industry when it bought a minority 8 percent stake in the Bank of Shanghai last year.

Citigroup has been negotiating with Pudong Development Bank for months. State media report it is prepared to pay up to $200 million for the stake, which it will likely finalize within the next two months.

Both Citigroup and Pudong Development Bank confirm the negotiations. The deal would make Citigroup the largest single shareholder in the bank, though government shareholders would retain majority control when combined.

That would be the first time Beijing has yielded such control to an overseas bank. Citigroup already operates in China from four branches.

Hang Seng is eager to tap the Chinese market, which offers greater growth potential than its home territory, the special Chinese administrative region of Hong Kong.

Huaxia Bank is reportedly mulling an initial public offering, a common initiative for Chinese banks as they prepare to face overseas competition.