Back in the 1980s, it was known as the People's Construction Bank of China, and like other state-owned banks here it had a role: to help finance the government's big construction and infrastructure projects.
 
Now, China Construction Bank has a different role: It is expected to be the first of the big four state-owned banks in China to go ahead with an initial public offering of stock, a move that could help to radically transform the nation's banking sector.
 
The first step on that road was accomplished Friday, when the Bank of America, looking to gain access to one of the hottest economies in the world, said it had agreed to acquire a 9 percent stake in China's third-largest lender for $3 billion.
 
Doing business in China has its challenges. Several large banks, including China Construction, have struggled amid scandals and charges of corruption. Yet despite the weak performance of China's biggest lenders, many foreign banks have expressed an interest in getting a foothold before 2007, when Beijing opens its banking sector to competition.
 
Now, analysts say, the Bank of America is set to play a big role in trying to help transform one of China's troubled megabanks into a financial powerhouse.
 
But almost no one believes that will be an easy task.
 
For one, China Construction Bank is huge: It has $472 billion in assets and 310,000 employees in China at a time when Citigroup, the world's largest bank by assets has about 300,000 employees worldwide.
 
And as a state-owned company with more than 14,000 branches, China Construction Bank will be hard-pressed to change its ways, something analysts say it will have to do in the coming years, particularly when China's banking sector opens to global competition in 2007.
 
"This is going to be a challenge," said Ryan Tsang, director of financial services at Standard & Poor's Rating Services. "When you compare them to what they were a couple of years ago, there's been substantial improvements. But they have lots of people and lots of branches. And they need to reshape their corporate culture."
 
Analysts also say that like other state-owned banks here, China Construction Bank has a history of management problems - and corruption. Three months ago, the bank's chairman resigned after he was accused in a lawsuit of taking bribes from an American company.
 
Another chairman was fired and jailed less than three years before that, after the government accused him of accepting bribes during his tenure at the Bank of China, another one of the big four state-owned banks.
 
And there are other problems as well. Over the past few years, China Construction Bank has disclosed that millions of dollars have disappeared from some of its branches and accounts. In some cases branch officers fled overseas with millions of dollars in cash.
 
Earlier this year, China Construction Bank disciplined an astonishing 40,000 employees, according to the state media. And since September 2004, staff members have been accused of embezzling nearly $100 million, some of which was spent at casinos in Macao.
 
The corruption scandals have proved embarrassing and raised questions about whether the banks are ready for public stock offerings. But banking regulators have pushed the banks to go ahead with their listings, moving to install new managers when necessary. 
 
Today, many analysts say that China Construction Bank is actually the best of the big four state-owned banks, which include Bank of China, Industrial & Commercial Bank of China and the Agricultural Bank of China.
 
Because China Construction Bank was formed as a lender to government construction and infrastructure projects, it ended up with better-performing loans to real estate developers, analysts say.
 
Another bright spot for the bank is its majority stake in China International Capital Corporation, the highly profitable investment bank it formed with Morgan Stanley in 1993.
 
Its size and management were also believed to be relatively better than other banks. So several years ago, the government designated China Construction Bank and the Bank of China as the two best suited to go public.
 
As a result, regulators here have restructured their banking operations, hired consultants and brought in advisors, like Morgan Stanley, to help ready the banks for initial public offerings in time for the scheduled opening of the banking sector to foreign competition, in accordance with China's World Trade Organization commitments.
 
Since 1998, the Chinese government has pumped more $250 billion into the big four state-owned banks to restructure their balance sheets and clean up nonperforming loans.
 
In late 2003, the government injected $45 billion into just two banks, the Bank of China and China Construction Bank. It also pressured those banks to institute corporate governance reforms, close some branches and pare down their staffs. The changes have been dramatic, some analysts say. Some years ago, China Construction Bank had nearly 500,000 employees.
 
"They are doing much better than they were before but not as good as they should be," said Stephen Green, an analyst at Standard Chartered. "But the problem is China's growth is expected to slow down over the next three years. And when the cycle turns, company profits will dry up and they won't pay back their loans. That could be a problem for the banks."
 
China Construction Bank has lured $3 billion from Bank of America, which has the option to take an even larger stake before a public offering. If China Construction Bank goes public, analysts say it could raise close to $5 billion, which would make it by far the world's largest initial public offering this year. 
 
(Source: International Herald Tribune/Contributor: Chris Buckley and Julie Creswell/Photo source: AP/Reuters/The first picture shows that China Construction Bank Chairman Guo Shuqing, left, shakes hands with Bank of America Board Chairman Kenneth D. Lewis at the signing ceremony in Beijing Friday, June 17, 2005. )

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