Bank of America is to pay $3 billion for a 9 per cent stake in China Construction Bank in the largest single foreign investment in China's banking sector.
Bank of America, the second biggest bank in the United States, wants to expand abroad after reaching the 10 per cent maximum share of deposits in its home market.
China Construction, one of China's Big Four state banks and the country's top property lender, is eager to sign up a foreign investor ahead of a planned $5 billion IPO later this year.
Bank of America has the option to lift its holding in China Construction over the next five-and-a-half years to 19.9 per cent, the maximum allowed under Chinese law.
Bank of America said it would initially invest $2.5 billion in Construction Bank and buy a further $500 million when the Chinese bank listed its shares in Hong Kong.
A source familiar with the situation said on Friday that Construction Bank's planned $5 billion IPO was on track for later this year.
Chinese state banks are angling for foreign investment to bring credibility to an industry tarnished by loan fraud and corruption. The country has bailed out several institutions awash in bad loans to help create a sound banking system.