Investors are allowed up to 20pc equity in China Construction Bank and Bank of China before their public listings China will allow foreign investors to take strategic equity stakes of up to 20 per cent in Bank of China (BOC) and China Construction Bank (CCB) before planned public listings that aim to cement international best practice at the state lenders. However, the government would probably retain majority control of both banks for the foreseeable future, said Guo Shuqing, head of the State Administration of Foreign Exchange (SAFE), which together with the Ministry of Finance and the People's Bank of China manage the state's holdings through Central Huijin Investment. It was possible that domestic players could be invited as strategic investors, increasing the pre-listing share sales to above 25 per cent, but he said the key objective was to tap their advanced risk-management and credit controls to help speed the process of fixing moribund state banks. 'The banks are deficient in skills, experience and market orientation. We need to import more advanced expertise and operational approaches,' he said. A reduction in the stake held by Huijin, which holds 100 per cent of BOC and CCB on behalf of the state, was a step on the road to turning the banks into 'real commercial banks' capable of competing in the marketplace, Mr Guo said. No targets had been set for Huijin's sale of its stakes in the banks and it was willing to sell more stock as long as the disposal was conducive to the banks' development, he added. Both banks recently shared a US$45 billion government bailout funded by the country's foreign exchange reserves, a controversial solution that aims to provide the foundation for changing them from state-controlled, policy-directed banks to commercial entities driven by market forces and accountable to shareholders. Both banks are running against a tight deadline as they face competition from foreign rivals by 2006, when China is compelled to fully open its retail banking sector to foreign lenders. Mr Guo ruled out suggestions that another two state banks - Industrial and Commercial Bank of China and Agricultural Bank of China - were being neglected by virtue of being overlooked in the state rescue. The government was considering whether to bail out these two banks but nothing had been decided, he said. China's Big Four state banks, whose bad debts accounted for almost 20 per cent of their loans last year, represent the greatest challenge in cleaning up a financial system that was left unchecked and descended into crisis. Above all, the big banks are deemed 'too big to fail' since they account for such a dominant share of credit intermediation in an economy where capital markets remain in their infancy. A state bailout appears to be the first step in the banking recapitalisation, with the government expecting the market to step in to do the rest. The use of foreign exchange reserves has prompted domestic criticism as an inappropriate application of funds. Both banks are racing to clean up their balance sheets to qualify for a stock-market listing.