Bank of America Corp plans to set up a wholly owned subsidiary in China to expand in the world's fastest-growing major economy, people briefed on the plan said.

The largest U.S. bank plans to expand its corporate and investment banking business, and offer wealth management services to tap rich Chinese consumers, according to the sources, who requested anonymity because they were not authorized to discuss the plan.

Bank of America has set up a special internal workforce to complete plans to incorporate in China. It is expected to formally apply to a Chinese banking regulator for a local incorporation license in the next few months, the people said.

A Bank of America spokesman in Charlotte, North Carolina, declined to comment.

It is unclear how much Bank of America, which acquired investment bank and brokerage Merrill Lynch & Co on January 1, will invest in its China incorporation.

HSBC Holdings Plc, among the first foreign banks to win Beijing's approval for a locally incorporated unit, invested 8 billion yuan (US$ 1.17 billion) in its China incorporation as registered capital in early 2007.

More than a dozen foreign banks, including Citigroup Inc and JPMorgan Chase & Co, have launched local subsidiaries in China in a bid to tap customers in the country more easily.

Bank of America shares were up 2.7 percent at $13.89 in afternoon New York Stock Exchange trading.


Incorporating in China can allow foreign banks to operate the same range of businesses as their domestic counterparts. Once locally incorporated, Chinese banking regulators may grant approvals to open new branches or offer new products more quickly and easily.

But under Chinese securities rules, Bank of America will still need to find a local partner for a joint venture to handle some high-profit investment banking businesses, such as underwriting shares and bonds for local companies in domestic markets, as rivals including Morgan Stanley and UBS have done in the past few years.

Bank of America's retail expansion in China is restricted by an agreement the company has with China Construction Bank, in which it holds a minority stake. The deal prohibits it from competing with CCB's retail banking business in China.

Instead, Bank of America will probably focus on providing wealth management services under its Merrill Lynch brand to rich Chinese customers, according to the people briefed on the plan.

The rush by foreign banks to expand into China has waned amid the global recession as many Western banks have battled rising loan losses. Some foreign banks such as Belgian financial group KBC Groep NV, for example, have canceled or delayed plans for local incorporation in China.

Earlier this week, Bank of America, which has received $45 billion in U.S. government cash injections, said it planned to shrink its 6,109-branch U.S. network modestly over the next three to five years.

($1 = 6.8321 yuan)

(Reporting by George Chen in Hong Kong and Elinor Comlay in New York, additional reporting by Donald Durfee in Hong Kong; Editing by Lisa Von Ahn and Jeffrey Benkoe)