In banking news, China’s Bank of Communications (Bocom) shares were up as much as 9.5% on speculation that HSBC was interested in increasing its stake in the bank. Bocom shares have risen 77% since their IPO on May 14 of this year. HSBC bought a 19.9% stake in Bocom back in August of 2004 but this position was diluted down to 18.1% after Bocom’s IPO this year. HSBC also has an option to increase its stake in Bocom to 40% starting in August of 2008 assuming it can gain regulatory approval.

China’s Agricultural Bank looks like it might be up next for a bailout. With over US$100 billion in bad loans and 23% of its loans not being repaid according to its latest annual report, the bank is in need of some serious help. According to a government proposal that is being reviewed by the State Council, the bank would move some of its worst performing 14,500 branches in the countryside to an independent company, in an effort to get rid of the worst performing branches and improve overall operations.

Even more interestingly:

“The Ministry of Finance and China Investment Co., an agency set up last month to manage US$200 billion of the nation's foreign exchange reserves, would each own a third of Agricultural Bank, the document said. Another 20% would be sold to foreign investors that have experience with rural lending, and about 5% to local corporate investors, according to the document. The remainder would be offered to the public.”

Guess we now know where some of that US$200 billion in forex funds are going; now we are just wondering which international bank with rural lending experience will get that 20% stake if all this goes through.