KUALA LUMPUR, Nov 4 – The Malaysian government is set to award a rare banking licence to China’s largest bank as part of a major push to attract investments from the world’s third-largest economy.

The official go-ahead for the Industrial and Commercial Bank of China (ICBC) to start operations, which will include four branches, is expected to be announced during Chinese President Hu Jintao’s two-day state visit to Kuala Lumpur next week, financial executives and government officials familiar with the situation told The Straits Times.

“We hope to get the approvals ready for the visit. There will be other economic initiatives, which will include invitations to Chinese companies to participate in infrastructure ventures and take strategic stakes in Malaysian companies and projects,” a senior Malaysian government official said.

The Malaysian move represents a major departure from its dealings with foreign financial institutions.

The handful of financial institutions that have full commercial banking licences, such as HSBC and Standard Chartered, have been in Malaysia since before it gained independence in 1957.

Foreign investors will most certainly cheer the award of a banking licence to a foreign bank and view it as another sign of Malaysia’s commitment to liberalising its financial sector.

Former premier Abdullah Badawi opened the sector slightly when his government awarded an Islamic banking licence to Kuwait Finance House, a leading financial organisation in the Muslim world, five years ago.

Malaysia is currently saddled with one of its biggest budget deficits in decades because of the sharp jump in public spending to boost the domestic economy.

The push by Prime Minister Najib Razak to attract the likes of ICBC to the local banking scene will direct more investment dollars from China to Malaysia, analysts said.

The move is not likely to go unnoticed by the country’s economically powerful Chinese community, which has grown increasingly wary of the ruling Barisan Nasional (BN) coalition government led by Datuk Seri Najib.

The BN suffered its worst electoral setback in last year’s general election as a result of a sharp rejection by Chinese voters.

A senior government politician close to Najib acknowledged that awarding the licence to a Chinese bank was unlikely to win over the Chinese community completely but that it “will help in the government’s image-building with the Chinese”.

Kuala Lumpur-based bankers said that the planned award of a full banking licence to the ICBC is one of three that the government has earmarked and is central to its efforts to make Malaysia a more attractive investment destination.

After years of treating Japan as the most preferred investor, government planners are now eyeing China, India and the Middle East as key economic partners.

“Three licences have been set aside for these main partners and the move to award ICBC the licence is part of that plan,” said the chief executive of a government-controlled financial institution.

Bankers familiar with ICBC’s plans for Malaysia said that the group was likely to focus on project and trade financing between Malaysian and Chinese companies. Bilateral trade between Malaysia and China is estimated at RM135 billion annually.

Hu’s trip, which starts on Tuesday, will be the first state visit to Malaysia by a Chinese president in 15 years. His predecessor Jiang Zemin visited Kuala Lumpur in 1994. – The Straits Times