updated 10/30/2006 10:23:59 AM ET 2006-10-30T15:23:59

With the bang of a gong, China’s biggest bank kicked off the world’s biggest initial public offering of stock on Friday, a milestone for the country’s financial markets.

Industrial & Commercial Bank of China’s shares surged 14.6 percent in Hong Kong from their IPO price but gained only 5 percent in Shanghai, below analysts’ forecasts for at least a 10 percent gain in the opening session.

ICBC made history by simultaneously conducting its IPO in Shanghai and Hong Kong in parallel listings that enabled both domestic and foreign investors to participate. The key benchmarks in both stock markets fell, contrary to expectations.

The stock sale beat the previous record $18.4 billion IPO staged by NTT DoCoMo Inc. in 1998.

ICBC raised a minimum of $19.1 billion, but it was expected to soon increase its offering to $21.9 billion by exercising the so-called greenshoe option to meet extra demand.

Investors snapped up the stocks because they viewed Chinese bank IPOs to be good ways to profit off of the nation’s roaring economic growth, analysts said.

“They are buying for the China growth story,” Francis Lun, general manager, Fulbright Securities Ltd., in Hong Kong. “China’s economy is growing by 10 percent a year and ICBC is the largest bank in China. If it grows in tandem with the Chinese economy, I think it should be worth much, much more in the future.”

But Lun noted that Chinese banks can be a risky investment because of a history of bad loans and bad management. ICBC received a $15 billion injection from the government to clean up its balance sheet last year.

“If ICBC can clean up its balance sheet, improve its management and if nobody runs away with several hundreds of millions of dollars, that’s the most important thing,” Lun said.

The timing for the dual IPO couldn’t be better for ICBC, with the Hong Kong index near record highs and Shanghai’s trading near a five-year peak.

Regulators say they plan to encourage more star companies to list shares on the domestic share markets in Shanghai and Shenzhen.

The stock’s price jumped 14.6 percent to HK$3.52 ($0.45) compared to its IPO price of $3.07 ($0.39) per share. Analysts predicted the stock would rise between 10 percent to 15 percent.

But in Shanghai, the so-called “A shares” only gained 5.1 percent from their IPO price to close at 3.28 yuan. They had also been expected to shoot up 10 percent to 15 percent.

Analysts attributed ICBC’s lackluster performance in Shanghai to the massive strain on liquidity from the influx of new shares. The Shanghai segment of the bank’s IPO raised 46.64 billion yuan ($5.9 billion), a record for a mainland bourse. ICBC issued 14.95 billion Shanghai shares after overallotment, up from 13 billion A-shares originally planned.

Investors also may have become a little gun-shy after shares of state-run Bank of China jumped more than 30 percent on its first day of trading in Shanghai in July. Since then, they have generally declined.

ICBC is China’s biggest bank, with 6.45 trillion yuan ($816 billion) in assets. It is the third big state-owned commercial bank to list shares, part of reforms aimed at boosting the industry’s competitiveness ahead of an opening of the market to more foreign competition later this year.

All three banks received multibillion-dollar government bailouts after writing off massive amounts of bad debt. They’re revamping their operations with the help of foreign strategic investors — in ICBC’s case that includes Goldman Sachs Group Inc., American Express Co. and Germany’s Allianz AG.

Yet all three listed banks are still controlled by the state. More than 72.5 percent of ICBC is held in equal shares by the Ministry of Finance and the state’s asset management arm, Central SAFE Investments Ltd. The national pension fund holds a 5.4 stake and foreign strategic investors a combined 7.4 percent.

That leaves only about 15 percent of the bank’s equity in the form of Hong Kong and Shanghai-traded shares.

Local investors are well aware that ICBC, and other local banks, have a long way to go to match the level of services and products offered by global banks.

“Just go to ICBC to try to withdraw some money and you will understand better why it is hard to be quite optimistic about the ICBC’s performance in the stock market,” said Peng Yunliang, an analyst at Shanghai Securities.

The IPO is just one step, though a major one, said ICBC President Yang Kaisheng, who kicked off Shanghai trading Friday by banging on a gong and then sipping wine served by women in silk red dresses with other VIPs.

“We will take this public offering as the first step, and continue to strive toward our goal of becoming a first-rate international financial enterprise,” Yang said.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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