erformance. Almost all strategic investors have started joint operations in one or more non- core areas, with potentially larger involvement. Importantly, the return on such investment is not fully dependent on the bank's overall performance, which will hedge some of the risks mentioned above and also weaken incentives for the investors to push hard for changes in the core commercial banking business. The authorities need to ensure that: (i) no value is lost in the side cooperation agreements, because the banks will all be listed and there could be major legal and reputation issues; and(ii) foreign investors have strong incentives to fully engage in improving core banking business Price developments of large Chinese Banks IPOs (Bocomm, BOc and CCB) 18.0004 18,000 BoComm's Share P CCB's Sha 17,000 16.5003 Pre-lPO price paid by 15,0002 strategic investors 15.000 Pre-lPO price paid by 14.000 strategIc Investors 13,5001 14.000 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Hang Seng Index(RHs) 4.0 18.0005 BOC's Share prices BOC's Share prices 1750 17.000 3.0 16,5003 1,650 16.000 ipo price paid by trategic Investors 150001 1,500 ndex(rHs) Shanghai Composite Index(RHS) Sources: Bloomberg CEIC8 performance. Almost all strategic investors have started joint operations in one or more non￾core areas, with potentially larger involvement. Importantly, the return on such investment is not fully dependent on the bank’s overall performance, which will hedge some of the risks mentioned above and also weaken incentives for the investors to push hard for changes in the core commercial banking business. The authorities need to ensure that: (i) no value is lost in the side cooperation agreements, because the banks will all be listed and there could be major legal and reputation issues; and (ii) foreign investors have strong incentives to fully engage in improving core banking business. Price developments of large Chinese Banks IPOs ( BoComm, BOC and CCB) Sources: Bloomberg, CEIC. BoComm's Share Prices 1 2 3 4 5 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 13,500 14,000 14,500 15,000 15,500 16,000 16,500 17,000 17,500 18,000 BoComm Hang Seng Index (RHS) Pre-IPO price paid by strategic investors CCB's Share Prices 1 2 3 4 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 14,000 15,000 16,000 17,000 18,000 CCB Hang Seng Index (RHS) Pre-IPO price paid by strategic investors BOC's Share Prices 2.0 2.5 3.0 3.5 4.0 May-06 Jun-06 Jul-06 Aug-06 Sep-06 15,000 15,500 16,000 16,500 17,000 17,500 18,000 BOC Hang Seng Index (RHS) Pre-IPO price paid by strategic investors BOC's Share Prices 1 2 3 4 5 3-Jul-06 21-Jul-06 10-Aug-06 30-Aug-06 19-Sep-06 1,500 1,550 1,600 1,650 1,700 1,750 1,800 BOC Shanghai Composite Index (RHS)