The joint stock company will have a registered capital of 186.39 billion yuan (US$22.5 billion), the central bank said Tuesday.

The Central Huijin Investment Co Ltd will hold 100 percent of the company's shares on behalf of the central government, it said.

Economists said the move suggests a major breakthrough in the share-holding reforms of the country's major State-owned commercial banks.

Bank of China and China Construction Bank, which won a US$45 billion bailout from the government in late December, were chosen by the central government as a pilot project to turn them into joint stock banks.

"Establishment of the Bank of China Co Ltd indicates a major step by the foreign exchange bank towards a final initial public offering," said Niu Li, a senior economist with the Beijing-based State Information Center.

China Construction Bank is expected to announce the establishment of a joint stock company next month, following the splitting of the bank into two entities.

"Chinese commercial banks will have to sharpen their competitive abilities before foreign banks have unrestricted access to the Chinese market at the end of 2006," Niu said.

The banks will have to lower their rates of non-performing loans, get rid of historical financial burdens and raise their capital adequacy levels to international standards, he said.

The country's commercial banking laws stipulate that commercial banks' capital adequacy ratios would have to reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers.

"This means China's commercial banks, especially the four State-owned banks, will have to achieve that goal before they can be listed," Niu said.

Bank of China spokesman Zhu Min said earlier that his bank had basically finished clearing the asset liability sheet in the first half of this year.

During the period between January and June, the bank wrote off 108.4 billion yuan (US$13 billion) worth of non-performing assets in the loss category.

It also sold 149.8 billion yuan (US$18 billion) worth of non-performing loans in the doubtful category.

By the end of June, the bank's non-performing asset rate had dropped to 5.46 percent, down from 16.29 percent at the beginning of this year, according to bank data.

Meanwhile, the bank managed to raise its capital adequacy rate to 8.3 percent by issuing 14.07 billion yuan (US$1.7 billion) worth of subordinated debt.

Zhu said that creating a clean balance sheet was just the first step in the bank's shareholding reform efforts.

More work needs to be done to establish good corporate governance and reform the institution's human resource management, he said.

Fellow spokesman Wang Zhaowen said the bank would usher in company investors to hold stakes in its initial public offering.

The introduction of foreign companies as strategic investors would be beneficial for increasing capital strength, optimizing capital structure and diversifying the ownership of the bank, Wang said.

More importantly, foreign company investors could bring in advanced management experiences and improve the bank's corporate governance, he said.

(China Daily August 25, 2004)