(China Daily)
Updated: 2007-10-11 14:27

Minsheng Bank's stake in a US bank marks a big step forward in its efforts to explore the overseas market.

Yet, more importantly, the move bears testimony to the progress Chinese banks have achieved in transforming themselves into ingenious commercial lenders.

Just few years ago, foreign acquisition of big stakes in major Chinese banks appeared to be a must-do for the reform of the Chinese banking sector. It was widely believed then that introduction of foreign strategic investors who could bring advanced management and expertise was essential to improving the quality of Chinese banks.

Now, after years of painful reforms, some Chinese banks are beginning to make forays into developed markets where competition can be more intense than the domestic one.

China Minsheng Banking Corp, the country's seventh-largest bank by market value, announced on Monday that it will buy up to 20 percent of UCBH Holdings Inc, the biggest bank serving the Chinese community in the United States.

The deal would be the first strategic investment in a US bank by a Chinese mainland financial institution. It looks like a win-win deal for it would gain a US presence for Minsheng Bank while giving UCBH a stronger exposure to the mainland market.

However, it is far too early to tell if Minsheng's investment will be as successful as foreign banks' stakes in Chinese banks not so long ago.

Thanks to China's robust economic growth and drastic banking reforms, major Chinese lenders have conspicuously improved their performance and created stunning returns for their foreign investors.

Total assets of Chinese banks nearly doubled to 48.5 trillion yuan ($6.38 trillion) from 26.5 trillion yuan in 2003. Latest statistics show that the Chinese banking sector made a total profit of 268.97 billion yuan in the first six months of this year.

Minsheng Bank, the country's first private bank which saw its net profit swell by 65.8 percent in the first half of this year, is certainly among those brave reformers in China's banking sector.

The landmark deal it has struck will provide an opportunity for the bank to expand its global footprint and exposure to the risks of unfamiliar market conditions.

The fact that this bank is ready to seize the opportunity and face the challenge of foreign expansion testifies growing confidence of Chinese banks to stand competition from foreign banks at home and abroad.

As the Chinese economy is increasingly integrated with the rest of the world, it is encouraging that domestic banks are beginning to think and operate as globally as international banking giants. But it is also important that they should always be as prudent as their foreign peers.