The structure of the four partnership arrangements has been similar The strategic investor is a major international commercial bank with substantial commercial banking expertise. The only exception is Goldman Sachs, the main investor in ICBC, which is a leading investment bank without major commercial banking operations. ICBC explains this investment as intended to aid it in developing wealth management business and its strategy to keep consumer finance in-house With ownership shares between 9 and 20 percent, the strategic investors have no management responsibility, but have the right to nominate one or two members of the Board of Directors, which has more than 15 members, on average Direct investment safeguards are relatively limited. Bank of America is covered only book value below end-2004 and end-2005 book value; respective/nst a decline of for the restatement of 2004 financials, rbs and Goldman Sachs ag Strategic investors have started or plan to start cooperation in one or more non-core banking business Credit card business is one popular area, and HSBC's agreement with the bank of Communications can serve as an example The credit card business unit is managed as a joint venture and the existing agreement is to give hsbc a 50 percent share once regulations permit spinning off the unit from the bank. RBS has a similar arrangement with the BOC, and Bank of America is negotiating credit card cooperation with the CCB. similar agreements may be developed in investment banking, wealth management, or information technology Foreign ownership participation in smaller Chinese banks has increased substantially as well In 2004, five Chinese bankS, including BoCom, Shenzhen Development Bank, and Xian City Commercial Bank, brought in foreign strategic investors, doubling the number of Chinese banks with foreign equity participation. In 2005 and early 2006, a number of further arrangements with strategic investors were announced, including China Minsheng Banking Corporation, Huaxia Bank, Bohai Bank, Bank of Beijing, and Hangzhou City Commercial Bank(table 2) There are several reasons that may have motivated the interest of foreign strategic investors the smaller banks while there are substantial risks in entering the chinese banking sector as a strategic investor, (including in corporate governance, legal system, reliability of financial information, and regulatory treatment), foreign interest may have been influenced by: (i) strong growth of the Chinese economy, which creates profitable opportunities; (ii a large banking sector, relative to the economy, allows considerable space to expand market share; (iii) recent progress in reforming the banking sector, improving regulation and supervision, and the Wto commitment to open the banking sector to foreign competition as of December 11, 2006; and (iv)theglobal balance sheet argument--because of the global6 The structure of the four partnership arrangements has been similar: • The strategic investor is a major international commercial bank with substantial commercial banking expertise. The only exception is Goldman Sachs, the main investor in ICBC, which is a leading investment bank without major commercial banking operations. ICBC explains this investment as intended to aid it in developing wealth management business and its strategy to keep consumer finance in-house. • With ownership shares between 9 and 20 percent, the strategic investors have no management responsibility, but have the right to nominate one or two members of the Board of Directors, which has more than 15 members, on average. • Direct investment safeguards are relatively limited. Bank of America is covered only for the restatement of 2004 financials, RBS and Goldman Sachs against a decline of book value below end-2004 and end-2005 book value; respectively. • Strategic investors have started or plan to start cooperation in one or more non-core banking business. Credit card business is one popular area, and HSBC’s agreement with the Bank of Communications can serve as an example. The credit card business unit is managed as a joint venture and the existing agreement is to give HSBC a 50 percent share once regulations permit spinning off the unit from the bank. RBS has a similar arrangement with the BOC, and Bank of America is negotiating credit card cooperation with the CCB. Similar agreements may be developed in investment banking, wealth management, or information technology. Foreign ownership participation in smaller Chinese banks has increased substantially as well. In 2004, five Chinese banks, including BoCom, Shenzhen Development Bank, and Xi’an City Commercial Bank, brought in foreign strategic investors, doubling the number of Chinese banks with foreign equity participation. In 2005 and early 2006, a number of further arrangements with strategic investors were announced, including China Minsheng Banking Corporation, Huaxia Bank, Bohai Bank, Bank of Beijing, and Hangzhou City Commercial Bank (Table 2). There are several reasons that may have motivated the interest of foreign strategic investors in the smaller banks. While there are substantial risks in entering the Chinese banking sector as a strategic investor, (including in corporate governance, legal system, reliability of financial information, and regulatory treatment), foreign interest may have been influenced by: (i) strong growth of the Chinese economy, which creates profitable opportunities; (ii) a large banking sector, relative to the economy, allows considerable space to expand market share; (iii) recent progress in reforming the banking sector, improving regulation and supervision, and the WTO commitment to open the banking sector to foreign competition as of December 11, 2006; and (iv) the “global balance sheet” argument—because of the global