By Yi Xianrong

On Monday, the Industrial and Commercial Bank of China (ICBC) began its gigantic public offering of A-shares on the Shanghai stock market and H-shares on the Hong Kong Stock Exchange.

Its simultaneous initial public offering (IPO) on both the Shanghai and Hong Kong stock markets involved 48.4 billion shares worth HK$150 billion (US$19.1 billion), marking the biggest IPO on the global capital market.

Institutional and individual investors in Hong Kong and the mainland received the offering with enthusiasm, as they saw the value of investing in ICBC.

Just as Jiang Jianqing, chairman of ICBC, has said, ICBC has become the biggest commercial bank on the Chinese mainland after its development in the past two decades. It has a huge population of customers, a strong distribution network, an advanced system of information management and a reliable capacity for innovation.

And its IPO bears a significance that cannot be overstated in any aspect, as the dual IPO itself is an unprecedented practice in the domestic capital market.

It is not only an experiment in establishing an interaction between the mainland and Hong Kong stock exchanges, pushing them into closer cooperation, but also a strategic step in the efforts of domestic stock exchanges to go global.

Even more, the offering used several new schemes in stock issuance and underwriting.

One such means is the greenshoe option, which allows underwriters to sell up to 15 percent more shares than the original number set by the issuer, if demand exceeds expectations and the stock trades above its offering price.

Greenshoe, also known as an over-allotment option, gets its name from the Green Shoe Company in the United States, which was the first company to offer such an option. It aims to stabilize share prices after they are listed and helps reduce their volatility.

However, the key significance of ICBC's listing is that it marks two historic developments in the domestic financial sector.

First, with ICBC's issuance of its stocks, the commercialization of China's banking sector has been accomplished.

It is common-sense knowledge that banks dominate the resources in the Chinese financial sector, and the leading positions in the banking industry are taken by the four State-owned banks: China Construction Bank, Bank of China, ICBC and the Agricultural Bank of China.

Now that all of these except the Agricultural Bank of China have gone public on the stock market, it is safe to say that the reform to the State-owned banks has achieved quite a lot.

The second piece of progress marked by ICBC's listing is in the development of the securities market.

Securities witnessed a boom in recent years and even prospered after the authorities began to convert non-tradable shares into tradable ones in April 2005.

Yet the upward stock index since then could not fully convince people that the market has gained full functionality after the conversion.

The conversion has only altered the distorted share-holding schemes in listed companies, but does nothing to help improve business performance.

Further development of the securities market relies on whether the market could attract more excellent companies to issue their stocks and win investors' confidence.

ICBC issues its stocks on the Shanghai stock market as a company with excellent business performance. It will definitely improve the portfolio of the listed companies in the market and help attract more companies with high value.

The sustained prosperity of the stock market is to be expected when more blue-chip companies emerge in the market.

Admittedly, the strongest factor for ICBC's charisma in the eyes of investors is its monopoly position and the State guarantee for its credibility.

ICBC's management has completed amazing changes to the bank in the eight years since it began a reform aiming to qualify for an IPO. But such changes would never have taken place without State support.

With the State's authorization, ICBC dominated the market of commercial and industrial finance, as well as attracting most of the individual deposits in cities since it was established. This huge group of customers makes ICBC the largest bank in the country.

On top of that, the State made a generous investment in ICBC's financial restructuring. The central bank also loosened control over the differences between interest rates for deposits and loans, which has directly boosted the bank's profits.

Even ICBC's most famous competitive edges, the largest volume of retail business and the most extensive distribution network in cities, are results of State support.

After the IPO, ICBC has become a public company whose fundamental task is to improve its business and create profits for its shareholders. But with the State as its biggest shareholder and guarantor, it still has a responsibility to serve the public interest.

It is therefore ICBC's duty to seek a balance between the interests of the State, its shareholders, its employees and the public. By doing so, ICBC should set an example for all State-owned banks.

Note: the author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences

(China Daily October 19, 2006)