China Huijin Investments, which controls 78.15 percent of the Bank of China, has indicated it is not happy with the involvement of the Singaporean government investment vehicle, the Hong Kong-based South China Morning Post reported.

"Huijin is BOC's major shareholder and at present it does not agree with Temasek becoming a strategic investor," the paper quoted a senior China Banking Regulatory Commission official as saying.

Under a deal announced in early September, Temasek was to have acquired a 10 percent stake in Bank of China for some US$3.1 billion, with the accord seen as a major agreement to help in the bank's planned listing next year.

The report cited the respected Caijing business magazine as saying the eight-man board of Huijin, the Chinese government's own investment vehicle which manages its holdings in the 'big four' banks, had voted down the proposal.

It said the board had a number of reservations over the extent of Temasek's investments in China, including in other banks.

The vice chairman of China Huijin Investments, Wang Jianxi, told AFP he could not comment on whether the Temasek bid had been scuttled, offering only a broad overview of the government's banking objectives.

"Introducing foreign investors is an important part of China's financial reform, which is very clear," Wang said.

"However, each bank is different from the others when it comes to what kind of investment or what kind of banking technologies the investors can provide. The central government does not have a unified standard and it needs to be decided by the banks accordingly."

The developments on Wednesday coincided with comments by Bank of China president Li Lihui in the Financial Times against criticism of the Temasek deal and the bank's other planned partnership with British lender the Royal Bank of Scotland.

He told the Financial Times in Hong Kong that the involvement of the two would help with an overhaul of the bank's systems and operations ahead of its planned flotation next year.

"Temasek (has) been quite successful in making investments in a number of countries and have been instrumental in reforming and renewing banks that have been slightly problem-ridden," Li said in the Financial Times report.

"RBS is a very famous and very well run European bank," he added. RBS has agreed to pay US$1.6 billion for a 5.1 percent stake in Bank of China.

Li said the deals -- along with a 2.0-percent stake sought by UBS and the Asian Development Bank -- would be the only ones with overseas investors and that they were "in line with international best practices."

The Bank of China hopes to raise some US$8 billion when it floats and Li told the Financial Times that it had met its pre-listing targets, including slashing its bad loan ratio to 5.12 percent.

"We regard the (float) not as our destination but as a bus stop by means of which we can move further towards our destination," he said.

Foreign banks have recently concluded several deals to enter the Chinese banking sector to serve a growing middle class hungry for loans and insurance policies.

Currently, Chinese banks may open up to 20 percent of their equity to a single foreign investor and 25 percent for a group of investors.

Another top official with the China Banking Regulatory Commission said Wednesday that five percent was the minimum limit for a strategic investment in a Chinese bank, although no such limit has been published officially.

"I think five percent can be considered the threshold for a strategic investor in Chinese banks," Tang Shuangning, vice chairman of the commission, told a financial conference in Beijing.

Tang did not mention whether the cap of 25 percent foreign ownership would be raised, but said that if there was no ceiling the banking system risked being controlled by foreign capital in the future.

Temasek could not be reached for comment Wednesday.

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