By Guo Tianyong (China Daily)
Updated: 2007-07-30 10:33

The author Guo Tianyong is director of the Banking Research Center under the Central University of Finance and Economics

The Bank of Nanjing and Bank of Ningbo, two Chinese city commercial banks, issued shares on the A-share market on July 19, receiving a warm response from investors.

The total frozen capital in online and offline subscription amounted to 1.04 trillion yuan ($136.8 billion) for the shares of Bank of Nanjing. The subscription for shares of Bank of Ningbo froze 818.4 billion yuan ($107.8 billion).

The price of their shares jumped by 75 percent and 122 percent respectively upon the market opening on the morning of July 19.

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The warmth shown by the market toward the two city commercial banks, and to about a dozen listed banks before them, stems from investors' understanding that the banks, as a whole, are profitable in the long run and worth investing in.

The total net profits of the 10 listed banks in 2006 were 170 billion yuan ($22.3 billion), achieving a 34.5 percent growth year-on-year. This is an impressive rise for any business.

In the IPOs, Bank of Nanjing raised a net 6.71 billion yuan ($882.9 million) after issuing 630 million shares, or 34.3 percent of its enlarged share capital, while Bank of Ningbo raised a net 4.027 billion yuan ($52.98 million) from the sale of 450 million A-shares, or 18 percent of its enlarged share capital.

Of course, the mass capital pooled by the two banks could also be attributed to excessive liquidity in the market.

Excessive liquidity is going to be with the Chinese economy for the long term. However, even faced with such an abundant reserve of money, a key part of the economy - small and medium-sized enterprises, are short of capital supply. And that could become a core area where the newly listed city commercial banks and their friends in other cities could fight against their bigger competitors.

According to a survey of 529 small and medium-sized businesses in 15 provinces and regions conducted by the Central University of Finance and Economics, 65 percent said financial institutions could not satisfy their demands. And 47 percent said they were not satisfied with the lending services of banks.

Small and middle-sized businesses account for up to 90 percent of all businesses, pay 60 percent of all business taxes and offer 75 percent of jobs in the country. They play a dynamic role in the country's economy. With 80 percent of small and middle-sized businesses located in counties or villages, they also play a key role in the government's effort to develop the rural areas.

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