December 3, 2007 -- Bohai Fund, China's first Industry Investment Fund signed an agreement on November 22 to purchase stakes of Chengdu City Commercial Bank through a private placement in Chengdu. Bohai plans to pay 1 billion yuan ($135 million) for a 10 percent holding in Chengdu Bank. This is Bohai Fund's first investment in the finance sector after closing its first deal on November 2, paying $201 million for a stake in Tianjin Pipe, a maker of steel tubes.

Chengdu Bank plans to raise six billion yuan (US$81 million) selling new shares to domestic and foreign strategic investors to plug a capital shortfall, according to Rangjun Wu, a spokesman from Chengdu Bank. Earlier in October, Hong Leong Bank, a Malaysian lender agreed to buy 20 percent of Chengdu Bank for 1.95 billion yuan (US$245 million).

"The investment in Chengdu Bank will need special approval from the National Development and Reform Commission and China Banking Regulatory Commission as potential investors must be profitable for three consecutive years," Zhigang Mao, Chengdu Bank's President, said in a statement.

China's city banks, which were restricted to operating in their city of origin until last year, need funds to compete with institutions that have more capital and no geographic limits. Chengdu City Commercial Bank was set up in December 1996. As the first city Bank in Sichuan Province, it has been ranked first in capital asserts after ten years of development. Chengdu Bank expects to upgrade its profitability by introducing strategic and financial investors like Bohai and Hong Leong.

"It comes as no surprise that Bohai's second investment falls in the banking and finance sector." Shangkang Wang, an analyst from Jiangsu City commercial Bank told Emerging China. "China's economy enjoys high growth, 11.5 percent in the first nine months of this year. Buyout firms are seeking acquisitions in China to capitalize on economic growth while capital shortage is the bottleneck for many enterprises. Chengdu Bank seeks capital and sound supervision to compete with its state-owned counterparts; Bohai seeks the guaranteed investment return in the promising financial sector. If the cooperation goes well, it can be a win-win situation for both."

Bohai Industrial Investment Fund Management, the first government-backed private equity fund in China was set up in Tianjin on December 2006 with 20 billion yuan (US$2.7 billion). It seeks to provide easy access to funding for small businesses and firms in the modern, manufacturing and high-technology fields. The major shareholders in the fund include Bank of China Group Investment, China Life Insurance and the Chinese social security fund.