Standard Chartered is more and more focused on Asia

The deal sharpens the UK-based bank's focus on Asia, which fed a 20% rise in profits for the first half of 2005.

The investment will give Standard Chartered a 19.9% stake in Bohai Bank, which is to be based in northern China.

China is preparing to float stakes in several banks and open up the market to more foreign players from 2007.

As a result, Western financial services firms are jockeying for position, hurrying to line up either to become strategic investors in the floated institutions, or to seal joint ventures and collaborations with other Chinese banks.

The attraction for us is that it's a new licence... so there is no inheritance of non-performing loans or anything like that Bryan Sanderson, Standard Chartered chairman

At present, no more than 25% of a state-owned bank can be controlled by foreigners, with any one institution limited to 20%.

Advisers have been appointed for the flotation of huge banks such as Bank of China, in which the UK's Royal Bank of Scotland recently took a 5% stake.

State-owned institutions have struggled with heavy burdens of bad debt, incurred thanks to politically-directed lending, as well as a spate of corruption scandals.

That was one reason to go for a new bank rather than follow RBS's lead, said Standard Chartered chairman Bryan Sanderson.

"The attraction for us is that it's a new (banking) licence, a national licence, so there is no inheritance of non-performing loans or anything like that," he said.

"We will set it up as a world-class bank, governed by international standards, right from the start."

His announcement came as UK Prime Minister Tony Blair led a European Union summit - and a delegation of UK business leaders - to China.