China Banks Rally on Optimism That Bocom Will Lead Reform Drive

Bank of Communications Co. led a rally in Chinese banking shares in Shanghai and Hong Kong on optimism that the government is poised to approve its reform plans.

Bocom, the nation’s fifth-largest lender and part-owned by HSBC Holdings Plc, surged by its daily limit of 10 percent in Shanghai and gained as much as 7.5 percent in Hong Kong, the biggest increase in six months. Bank of China Ltd. rose 4.7 percent in Shanghai and China Merchants Bank Co. added 6.9 percent in Hong Kong as of 10:46 a.m. on Thursday.

Shanghai-based Bocom’s final mixed-ownership reform plan was submitted to the State Council about a month ago, people familiar with the matter said yesterday. The lender wants market-oriented systems for decisions on personnel and compensation, the people said, adding that the bank expects the plan to be approved as early as within two weeks.

“The market is expecting banking reform to be implemented soon, with Bocom being the first to test the waters,” said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. “This will lend support to Chinese banks’ earnings and shares in the medium term because the reform will better align employees and management’s interests with their performance.”

Bocom said last July that it was studying plans to “deepen” mixed ownership and improve corporate governance as the government urged a new round of financial restructuring. Former Vice President Qian Wenhui said in August that mixed-ownership reform covers areas including ownership structure, management and human resources.

As of March, the finance ministry owned 26.5 percent of Bocom, while HSBC had 18.7 percent.

— With assistance by Jun Luo

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