China offers investors a massive market and booming growth

China Construction Bank, thought to be closest to sell-off, ditched $4.5bn of bad loans in 2003, state media said.

But China's financial sector sell-offs could be troubled by problems at China Life, 2003's biggest flotation.

The insurance company has revealed accounting irregularities at its predecessor worth more than $600m, triggering heavy selling of its shares.

Cleanup

Bad debts have long been seen as a key problem for China's attempts to clean up its banking sector, in preparation for the modest international competition mandated by its membership of the World Trade Organisation.

The problems are thought to be even worse than those which hamstrung neighbouring Japan's banks in the wake of the 1980s boom there.

But where Japanese banks had lent money to business partners, their Chinese counterparts are saddled with uneconomic lending to state companies for purely political reasons.

The problem loans could amount to as much as 20% of the total loan book, some analysts fear.

CCB's 11% bad-debt ratio is one of the best in the sector, which is why it is thought to be the leader among the four banks earmarked for flotation.

The current ratio is not known, but state newspaper China Daily said it cleared up 120bn yuan ($14.5bn; �7.9bn) of bad debts in 2003.

It shared a $45bn injection of state funds with Bank of China in 2003, to prepare it for the market.

Transparency

But its progress could still be overshadowed by the problems at China Life.

The insurance firm was created in June 2003 out of a larger state-owned predecessor, with regulators cherry-picking the best bits of its business and grooming them for the stock market.

But the firm has now owned up to $652m in accounting problems at the predecessor during 2002, pushing its shares down almost 4% in New York.