Sources said, however, there had been rumblings within the central government about the wisdom of the plan to allow mainland banks to seek strategic foreign investors without wholehearted efforts at restructuring.

Standard Chartered and Everbright appeared to have agreed on the pricing and should reach a deal soon, sources said.

Everbright Bank already counts the Asian Development Bank among its shareholders and is 20 per cent owned by Hong Kong-listed China Everbright Holdings.

It remained unclear whether the ADB and China Everbright Holdings would sell their stakes to Standard Chartered Bank.

Mainland banks are allowed to sell 25 per cent of their shares to foreign partners, but a single foreign bank cannot hold more than 20 per cent of any mainland bank.

Last month, Standard Chartered China chairman Lance Browne said the bank hoped to buy a stake in a mainland bank by the end of the year.

Yesterday, bank spokeswoman Gabriel Kwan refused to comment on the deal.

'We can't confirm it because it's just a market rumour. All I can confirm is what our director, Peter Wong [Tung-shun], has said, that we have been actively in talks with several Chinese banks for quite a long time and nothing has been confirmed. But we still have not completed any consultations,' Ms Kwan said.

Sources said HSBC was close to clinching the Bank of Communications deal and would likely do so before the end of the year.

Last week, Newbridge Capital announced it would acquire a stake of up to 20 per cent in the Shenzhen Development Bank for about US$150 million.

Last month, Hang Seng Bank bought into a 15.98 per cent share in the Industrial Bank in Fujian.

Sources said China Construction Bank, one of the Big Four state banks, was in talks with Deutsche Bank and Citibank, while the Bank of China was in discussions with Bank of America and a European bank.

They said many banking officials had misgivings about the rush by mainland banks to seek strategic foreign investors.

The banks appeared to be using foreign investment to quicken their pace in seeking stock market flotation instead of focusing on restructuring to become truly modern banks.

'What is the purpose of mainland banks seeking strategic foreign investors?' one leading mainland banker asked.

'Unless a foreign bank takes a majority control, its technology transfer will be limited. But as a strategic shareholder, [the foreign bank] will have the access to the data and client base of the Chinese bank.

'For the moment, the mainland banks appear to be seeking strategic foreign investors to make them look better in the eyes of foreign investors when they launch their initial public offerings.'

'All I can confirm is that we have been actively in talks with several Chinese banks for quite a long time' Gabriel Kwan

Standard Chartered spokeswoman