scale of operations of major foreign banks, the reater and once the technological platform has been installed, the marginal cost of extending the platform and integrating the processing of transactions to a regional center is very low Nonbank investments into Chinas banking system have increased as well (Table 2). In many cases, they are the leading strategic investor in the investment consortia(for example American Express and Allianz in the ICBC). Large financial investors have entered as well- Temasek, the investment arm of Singapore's government, has invested approximately US$4.5 billion in the CCB and boC(directly and in IPOs), and China's National Social Security Fund has invested over $1 billion in BOC shares. In addition, public listing of shares in overseas markets increases transparency of the banks and provides a mechanism for investors to evaluate their performance The pricing of foreign investments into Chinas banking system has varied. For instance relative to BoComm's pre-IPO price paid by foreign strategic investors, BoComm shares are currently trading at about 300 percent higher, suggesting that strategic investors made significant paper profits. Similarly, CCB's and BOC's IPO price is currently at about 170 percent and 160 percent relative to pre-IPO prices paid by foreign investors, respectively However, several factors can influence the pricing for foreign investors. First, the entry of the strategic investor itself may have increased the potential market value by raising investor confidence. Second, the cooperation with strategic investors may signal potentially larger uture profits for both sides. Third, strategic investors are locked-in for a period of time, mos stly for 3 years, so the implied profit cannot be realized So far the involvement of foreign investors in improving China's banks has be to SAFE Investments as foreign investors partly bought existing shares; (i)provideo t went Foreign investors have: (i) increased bank capital, even though part of their investment went credibility needed to launch IPOs of relatively large size; (iii) induced improvements in corporate governance and management, with some board seats being occupied by candidates nominated by the foreign investors; and (iv)provided limited technical assistance Overall. it remains unclear whether foreign strategic investors have sufficient incentives and foreign strategic investors are relatively small and their management involvement is minimal While the entry of foreign investors will undoubtedly bring some benefits, including greater transparency and some knowledge transfer, the structures of the strategic agreements so far do not give strong assurances that the investors will improve credit risk management, which is at the core of recent and potential future problems of Chinese banks. Operations in non- core areas by strategic partners can be lucrative irrespective of the banks overall Investors bought pre-IPO interests in CCB at about 1.15 to 1. 19 times book value, but the CCB went public at about 2.5 times book value. BOC's recent IPO delivered a pricing of about 2. 1 times book value, pre-IPO prices7 scale of operations of major foreign banks, the return on investment in technology is greater and once the technological platform has been installed, the marginal cost of extending the platform and integrating the processing of transactions to a regional center is very low. Nonbank investments into China’s banking system have increased as well (Table 2). In many cases, they are the leading strategic investor in the investment consortia (for example, American Express and Allianz in the ICBC). Large financial investors have entered as well— Temasek, the investment arm of Singapore’s government, has invested approximately US$4.5 billion in the CCB and BOC (directly and in IPOs), and China’s National Social Security Fund has invested over $1 billion in BOC shares. In addition, public listing of shares in overseas markets increases transparency of the banks and provides a mechanism for investors to evaluate their performance. The pricing of foreign investments into China’s banking system has varied. For instance, relative to BoComm’s pre-IPO price paid by foreign strategic investors, BoComm shares are currently trading at about 300 percent higher, suggesting that strategic investors made significant paper profits. Similarly, CCB’s and BOC’s IPO price is currently at about 170 percent and 160 percent relative to pre-IPO prices paid by foreign investors, respectively. 5 However, several factors can influence the pricing for foreign investors. First, the entry of the strategic investor itself may have increased the potential market value by raising investor confidence. Second, the cooperation with strategic investors may signal potentially larger future profits for both sides. Third, strategic investors are locked-in for a period of time, mostly for 3 years, so the implied profit cannot be realized. So far the involvement of foreign investors in improving China’s banks has been limited. Foreign investors have: (i) increased bank capital, even though part of their investment went to SAFE Investments as foreign investors partly bought existing shares; (ii) provided credibility needed to launch IPOs of relatively large size; (iii) induced improvements in corporate governance and management, with some board seats being occupied by candidates nominated by the foreign investors; and (iv) provided limited technical assistance. Overall, it remains unclear whether foreign strategic investors have sufficient incentives and opportunities to improve the core operations of Chinese banks. The ownership shares of foreign strategic investors are relatively small and their management involvement is minimal. While the entry of foreign investors will undoubtedly bring some benefits, including greater transparency and some knowledge transfer, the structures of the strategic agreements so far do not give strong assurances that the investors will improve credit risk management, which is at the core of recent and potential future problems of Chinese banks. Operations in non￾core areas by strategic partners can be lucrative irrespective of the bank’s overall 5 Investors bought pre-IPO interests in CCB at about 1.15 to 1.19 times book value, but the CCB went public at about 2.5 times book value. BOC’s recent IPO delivered a pricing of about 2.1 times book value, pre-IPO prices paid by strategic investors were lower at about 1.17 times book value