Second, strength enhanced and capital adequacy In 2004, the state has injected $45 billion to CCB and Bank of China to support there joint-stock reform and listing, in order to enhance the strength of Chinese banks, to get rid of the historical burden and reduce bad loans. On August 26, 2004, Bank of China Ltd. was formally established. June 1and July 5, 2006,Bank of China has successfully listed on the Shanghai Stock Exchange and Hong Kong Stock Exchange, becoming the first A+H issuance of securities state-owned banks. ICBC was listed on the Shanghai Stock Exchange on October 27, 2006 compared with CBC in October 2005 listed on Hong Kong Stock Exchange and return to the mainland A-share market on September 25, 2007.ICBC, Bank of China, CBC are all changed into state-controlled banks which is truly achieved commercial operation. Meanwhile, it also introduces foreign strategic investors in China and absorb foreign capital and advanced technology. After several years of Chinese financial industry reform, the banks bad loan ratio declined and yields rose year by year, the capital adequacy ratio was significantly higher than before, and efficiency increased significantly. Small and medium sized joint-stock banks has advantages over state-controlled banks since its inception, such as no historical burden, and governance perfect ,which has caused great achievements in recent yeas. Small and medium sized joint-stock banks are significantly better than CCB on return on capital, assets yield and performing loan ratio. But just because of the limited size made there domestic market share in small, and they have already begun to try to develop oversea market with capital increases and expansion, such as Minsheng Bank acquired 4.9% of the share capital of UCBH Holdings Inc.in 2008.The strength of Chinese banks has been enhanced and also have the capital to go out through a series of reforms and development. Currently, Chinese banks have accelerated the pace to go abroad and set off a wave of oversea M&A in the case of generally access of other banks.
Third, Gain experience and dispersing risk. As Chinese financial industry started late and the economy is in transition from a planned to a market process, the development of Chinese banking industry is still relatively backward, and the gap with foreign banks is still big no matter technology, equipment or labor. Among the World Bank ranking, Front banks are foreign banks according to the capital gains rate or index ranking, and various financial parameters of foreign banks were significantly better than the Chinese banks. After the outbreak of the global financial crisis, profits of foreign banks dropped significantly resulting in mixed operation, but the competitiveness of foreign banks is still better than the Chinese banks, cause its indisputable advanced technology, business strategy and excellent financial talent. Compared with the establishment of overseas branches, M&A allows banks to own the original advantages of foreign banks from abroad into the country in the case of retaining the original operating system and high-end financial professionals. Although a heavy loss was occurred on mixed operation because of the financial crisis, and many scholars questioned the mixed operation, the development of mixed operation as overall trend of global financial industry will not stop the financial crisis. In addition, oversea M&A can also be systemic risk that geographically dispersed. For example, a large snowstorm and earthquake occurred in China in 2008 that had not met for decades. These not only caused great losses to local economies, but also was a great obstacles overall economic performance, and even the banking sector suffered huge losses. Oversea M&A can spread the risk concentrated in one area, and of cause the more overseas banks, greater ability to spread risks.