BOC's initial public offering was valued at a hefty 20 billion yuan (2.5 billion U.S. dollars), the biggest-ever in China's market, and its equities, totaling 253.8 billion shares, dwarfed the 86.7 billion shares of former front-runner Sinopec Corp.

    Chairman of the bank, Xiao Gang, beat gongs for the debut trading at the Shanghai Stock Exchange main hall.

    BOC's opening price was set at 3.99 yuan, 29.5 percent higher than its IPO price of 3.08 yuan. That was beyond the estimation of many securities analysts.

    Shortly after trading began, the stock's price began dropping marginally, closing the morning session and the day both at 3.79 yuan.

    Shanghai's benchmark Composite Index ballooned by 2.2 percent to 1718.56. Many other stocks fell as investors turned to Bank of China. The index had gained 9 percent in the past three weeks in anticipation of the heavyweight's debut.

    Zuo Xiaolei, chief economist at China Galaxy securities company, said she was "very astonished" at the opening price of BOC, the first state bank listed in China's mainland.

    "Many investors believe the prices of new stocks would definitely rise. They are irrational, immature," she said to Xinhua. "The (BOC shares) price is far away from the value."

    She said she believes the bank's growth margins would be squeezed in the near future.

    Finance analysts interviewed by Xinhua also acknowledged BOC would be blamed for selling cheap state-owned assets in case its listing price in Shanghai became much higher than its reading in Hong Kong. Bank of China went public in Hong Kong last month.

    But Li Jiange, deputy director of the Development and Research Center of the State Council, said the bank's initial performance reflected the investors' strong optimism over China's financial reforms and economic growth.

Chairman of the bank, Xiao Gang (L), beat gongs for the debut trading at the Shanghai Stock Exchange main hall July 5, 2006. (XinhuaPhoto)

    A series of policy support in recent months fueled a surge in China's stock market, which had remained bearish for years due to poor management, and Bank of China is expected to give another shot in the arm to the market's recovery.

    China Galaxy, CITIC and Guotai Junan securities companies were underwriters of the BOC listing deal.

    The bank has said personal banking would be one of its chief growth drivers in the years ahead. It would target China's increasingly affluent consumers, who are hungry for credit cards, mortgages and auto loans.

    The bank's net profits soared 31 percent last year over 2004 to27.5 billion yuan. "Each business sphere saw stable growth," it said Friday in an annual report.

    Its non-performing loan ratio dropped half a percentage point to 4.62 percent, and its capital adequacy ratio, a measure of its own capital to outstanding loans, rose 0.38 percentage points to 10.42 percent, already above the 8 percent international requirement.

    When the bank was marketing its IPO, insurers, fund companies, stock brokerages, pension funds and other big investors went all out for a portion of its shares.

    The Central Huijin Company Ltd., a government investment arm, held the lion's share -- 67.5 percent -- of Bank of China before its trading debut. The company has pledged not to float the shares in the coming 36 months.

    Half of the bank's ten biggest shareholders were insurers.

    Reform milestone

    The shares sale marked another milestone in China's efforts to clean up a banking sector that has long been a weak link in the country's booming economy as a result of decades of state-directed lending.

    China set up four asset management companies in 1999 to dispose of 1.4 trillion yuan-worth of non-performing loans transferred from the "big four" including Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and BOC.

    In the following years, the government in turn poured a combined 60 billion U.S. dollars into ICBC, CCB and BOC in bailout packages to shore up their balance sheets. The three have either become shareholding companies or gone public after inviting foreign investors.

    It is now a more urgent task to overhaul Chinese banks before the full opening of China's financial market to foreign competition by the end of this year under a WTO commitment. China hopes selling shares and bringing in strategic investors will help its banks impose market discipline and strengthen management.

    BOC already raised the equivalent of 11.2 billion U.S. dollars in its initial public offering in Hong Kong on June 1, the world's fourth largest, and since has seen strong market performance.

    But corruption has been a big worry. One of the bank's former chairmen, Wang Xuebing, is serving a 12-year prison term for taking bribes. A former president of the bank's Hong Kong branch, Liu Jinbao, was given a suspended death sentence last August for embezzlement.

    The bank will "certainly" expose more fraud cases in the near future, BOC chairman Xiao Gang said, but emphasizing the bank's efforts to improve its risk control. The bank held a special meeting in May to focus on bill fraud risks after a case involving acceptance bills was discovered earlier this year, he said.

    Analysts also worry that a new flood of cash into BOC from its huge IPO may add to excessive loan growth, which defies a series of central government policies mapped out to cool down the allegedly overheating economy.

    New yuan-denominated loans reached half of the central bank's full-year target of 2.5 trillion yuan in the first quarter of this year, forcing the central bank to raise interest rates and banks' reserve requirements to discourage lending growth.

    Bank of China has assets of 4.7 trillion yuan, making it the country's second-biggest lender. The bank, founded in 1912, is the nation's most international banking institution, with 560 offices in 25 countries.

    Assistant president of the bank, Wang Yongli, revealed BOC held a foreign exchange balance of 60 billion U.S. dollars by the end of last year, sparking worries it would suffer losses when the renminbi keeps appreciating as widely anticipated.

    According to Wang, the bank plans to convert 15-18 billion dollars into local currency this year, and sell another 18 billion dollars to its biggest shareholder, Central Huijin, in 2007.

    "Generally speaking, Bank of China would be hit by the renminbi appreciation because it is dominated by foreign exchange business," Pinghe Securities analyst Guo Sizhi said.

    "But China's continuous economic growth and foreign trade boom would also yield great benefits for Bank of China, boosting the bank's market performance," he added.

    The parade of big Chinese bank IPO is expected to continue when ICBC, the country's No. 1 lender, hits Hong Kong's market later this year. The bank has also said it intends to get listed in Shanghai. Enditem