Goldman Sachs, American Express and Allianz Group will pay a combined US$3.78 billion for a stake in China's biggest bank. This is part of the Chinese government's efforts to overhaul China's weak financial sector.

Industrial and Commercial Bank of China, Ltd (ICBC) signed an agreement with the consortium in Beijing on Friday afternoon, sealing the biggest-ever foreign investment deal in China's banking industry. But regulatory approval is still pending.

China is reforming its Big Four state banks, which also include China Construction Bank, Bank of China and Agricultural Bank of China, in preparation for a complete opening up of its financial industry to foreign competitors by 2006, as per its World Trade Organization commitments.

Chinese banks are expected to streamline their operations and become "commercial banks in the real sense", as required by the government, by establishing shareholding systems, inviting strategic foreign investors and then going public.

This investment deal will be made through a subscription to newly issued ordinary shares in ICBC. The investors are allowed to appoint a director to sit on the bank's board.

According to the agreement, Goldman Sachs will assist ICBC to upgrade corporate governance, risk management and internal control. Allianz Group will cooperate with ICBC in insurance products and services, and American Express and ICBC will continue to develop their existing strategic ties in the cards business.

ICBC Chairman Jiang Jianqing said: "I am delighted that ICBC has formed these strategic alliances with three very special partners. Today's announcement marks the beginning of a new round of ICBC's corporate governance reform and business development."

Henry M. Paulson, Chairman and Chief Executive Officer of Goldman Sachs, said: "Today's agreement strengthens our long-standing commitment to ICBC and to China and its financial sector reform. This represents the beginning of what we hope will be a long and successful relationship between ICBC and Goldman Sachs."

Michael Diekmann, chairman of Allianz Group, also said that China is a strategic market for Allianz, and this partnership emphasizes the group's long-term commitment to the market.

"Through this agreement, Allianz will become one of ICBC's most important insurance and investment product providers," he said.

ICBC became a joint-stock company in October 2005, assuming all business and relevant assets and debts of the former solely state-owned bank.

The Ministry of Finance and Central Huijin Investment Co. Ltd., a central government investment arm, each hold a 50 percent stake in the new ICBC.

ICBC now has 18,000 business outlets in China's mainland, serving more than 4 million enterprises and more than 100 million individual clients.

Its capital adequacy ratio, the measure of its available capital in proportion to its outstanding loans, rose to 10.26 percent by the end of 2005, above the 8 percent international standard requirement.

The bank's non-performing loan ratio was 4.43 percent, compared with the 1-2 percent level reported by sophisticated foreign rivals.

(Xinhua News Agency January 28, 2006)