Interest in city commercial banks from foreign investors has been increasing in recent years as a mode of entry into China's rapidly growing banking sector.

 Yet things haven't gone smoothly. China's city commercial banks have struggled to go public -- an important exit channel for foreign investors.

 Bank of Chongqing Co. Ltd., based in southwest China, announced on May 9 an extension of the validity of its IPO resolution previously approved by the board, following Bank of Shanghai Co. Ltd., which resolved last month at its general meeting of shareholders to postpone its IPO plan to 2013.

 In reality, Chongqing Bank submitted its listing application to China Securities Regulatory Commission (CSRC) as early as 2007. However, responses from the CSRC indicate that the audit standard of city commercial bank IPOs is still under negotiation.

 “The judgment of city commercial banks'basic business models and business qualifications involves different regulatory authorities. The situation is relatively complex and the CSRC is currently under the course of further consultations with relevant departments,” said Ou Yang, vice director of the Supervision Department, CSRC. “Appropriate audit guidelines will be introduced once an agreement on relevant standards is reached”

 “Vast numbers of China's city commercial banks bearing various asset conditions and scales seek to go public to solve the many problems facing them, only to find that their own corporate governance, human resources and profit models are not perfect,” said Lv Suiqi, director of the Securities Research Institute of Peking University.

 Until these issues are resolved, city commercial banks will still be an unfulfilled promise for foreign investors.

 In 2005, KPMG released a report, "China's city commercial banks: Opportunity Knocks?". Here are some of the highlights:

 China's city commercial banks have had a short –and arguably not very successful- history in China's banking sector. They were created during the 1990's by city governments through the active merging and restructuring of China's 5,000 or more urban credit cooperatives to resolve a number of issued that had developed in the sector.

 The first city commercial bank to be established was Shenzhen City Commercial Bank in 1995.By the end of 1998 the initial wave of restructuring had created 88 city commercial banks. Since then still more city commercial banks have been formed, so that today the number stands at more than 140.

 Few city commercial banks have any substantial private investment and none of the banks are listed. Under the influence of the local government, city commercial banks have typically been vehicles to finance government projects.

 City commercial banks are considered to have a key role in financing the SME (small and medium enterprises) segment of the economy, which is considered by some to be an important factor in China's development.