CEOCIO Magazine, through its China Business Feature reviewed the stock frenzy in China in a recent article "What's So Hot About Hot Chinese Bank Stocks?". Despite warnings of an overheated market by professional analysts and high price-to earnings ratios, investors rush into the market at an unprecedented rate, with bank stocks becoming a national favorite.

China Business Feature reported that, "Over the last month, China Citic Bank, China's seventh-largest lender by asset, and Bank of Communications, the fifth-largest, have both been listed on the domestic A-share market, stoking a nationwide frenzy for bank stocks.

"Domestic investors rushed in to place orders despite the expensive IPO valuations: price-to earnings ratio of 50 for Citic Bank, and that of 30 for Bank of Communications. Citic Bank's share price jumped by 96% on its A-share debut, and the red-hot market sentiment overwhelmed any investment risk warnings.

"In fact, investors have been gobbling up domestic commercial bank stock regardless of the actual recommendations on those stocks. Excessive liquidity, RMB appreciation, new taxation policies and other positive expectations have all pushed domestic bank stock prices through the ceiling. "As far as most professional analysts are concerned, the market is a bubble and any one of a variety of hidden risks could explode at any time.

May Yan, the vice-president of Moody's Investor Service's Asia-Pacific Region, says that in terms of revenue mix, the domestic commercial banks are identical to each other: interest income accounts for over 80% of the total revenue, while the fee-based business contributes very little. This kind of revenue mix increases exposure to risk and makes these banks vulnerable to macro economic environment changes.

"These banks also have chronic weaknesses in customer service due to their small retail businesses and large corporate business volume. The recent domestic bull market has spurred average customers to pull their money out of savings and deposit it into stock funds. "In other countries, different tiers of commercial banks comprise a complete banking service system. But in China, the situation is completely opposite. The four largest state-owned banks have enormous service networks holding key market shares in almost all regions. City-level start-up commercial banks are eager to grow, develop cross-regionally, and eventually go public. This strategy inevitably leads to more intense competition among similar commercial, urban situated banks.

"China's domestic banks should focus on targeted client groups and create compelling marketing ideas that take advantage of their own unique advantages. Only customer-oriented commercial banks will thrive in the increasingly deregulated financial market."