A typhoon was set to crash over Hong Kong on Friday and the territory was engulfed in a giant cloud of rain and wind. Thankfully, the citizens of this technology-mad city, where people turn on the air-conditioning from the car with their mobile phone, had taken hi-tech precautions. Most windows were protected by sturdy crosses of sticky tape....Expect a similarly flimsy protection when the next stock market cyclone floods the Hong Kong and New York investment community. I am of course talking about the much-awaited listings of two of China’s biggest state-owned banks, Bank of China and China Construction Bank.Unlike the meteorological storms, which are rather difficult to predict, investors should be able to detect exactly where China’s banking typhoon is heading - their pockets.The two lenders are in a rush to list at the beginning of next year and their busy-bee investment banks are plotting how to convince international fund managers and Hong Kong retail investors to take the clearly illogical decision of subscribing for the initial public offerings.Bad loans, the bane of Chinese banks’ balance sheets, are coming down fast, they say. Yesterday BoC bravely claimed they were less than six per cent of the total, an astounding reduction considering they were in double-digit figures a few months ago.Systems and operations are being dramatically improved and will only get better once the “strategic investors” (Citigroup for CCB and a coalition of the willing for BoC) teach the Chinese how to do it.All that, plus, hopefully, another bout of “China fever” across international capital markets at the beginning of 2005, and BoC and CCB should be able to raise the $16bn or so they are seeking from grateful stockmarket investors. Well, that’s the theory at least.Not to be too negative, I think the current maelstrom of nod and winks, selective disclosure and half-baked “high-level briefings” for investors and the press, has a positive side. It is good that Chinese financial institutions - bred in a culture of waste and inefficient lending - are being economical even if it is with the truth.I spare you the technical discussions as to whether the reduction in bad loans is real (or have they just lent more?), whether the accounts are to be trusted (ever tried “sampling” records from 27,500 branches?) or the management is any good. My question is much simpler: why buy a state-owned Chinese bank when you could just as easily buy HSBC or Citigroup ?Let’s face it: if the cycle of fear and greed that rules China’s initial public offerings works in their favour, BoC and CCB are not going to come cheap.After all, BoC’s international operations, which are listed in Hong Kong, trade on more than two times its book value - roughly the same as Citibank or HSBC and much more than, say, JPMorgan Chase or Royal Bank of Scotland.Admittedly, investors seeking “growth” could be attracted by the prospect of mouthwatering rises in earnings per share as the newly-listed Chinese lenders use the new capital to increase efficiency and productivity.But the reality is the IPO money will go to clean up balance sheets and reduce bad loans - the reason for listing in the first place - not to pump up EPS growth.bsAnd if it is EPS growth you are after, other Asian Pacific banks, such as Australia’s Macquarie Bank (+40 per cent EPS this year according to UBS research) offer better prospectsesAnd for those who want to part-share in the miracle of a big country growing fast, lenders such as India’s HDFC Bank - well established, low risk and with 25 per cent forecast earnings growth - must be a credible alternative to patched-up Chinese banks.The truth is that international fund managers, who can invest their money across the world, do not need to come to Asia, and China of all places, to gain exposure to the financial services stocks. For all the excitement of Asia’s stocks, it is difficult to see the attractions of banking sectors that are either fiercely competitive (Taiwan, Hong Kong), risky (South Korea, Indonesia), over-banked (Singapore, Malaysia) or underdeveloped (China).Several analysts are wondering whether the merger between Japan’s Mitsubishi Tokyo Financial Group and UFJ, announced yesterday, would create a behemoth capable of challenging HSBC and Citibank on the global banking arena. Perhaps I am missing something but I really cannot see how the question arises. On one hand you have two domestic banks huddling together to prevent one of them from going down and on the other you have the world’s biggest, most efficient, financial services powerhouses. The combined MTFG-UFJ may end up with more assets than Citibank but it’s what you do with them that matters.