Financial insiders agree that the four state-owned commercial banks, the Industrial and Commercial Bank of China (ICBC), the Bank of China (BOC), the China Construction Bank (CCB) and the Agricultural Bank of China (ABC), are now healthier -- more independent, transparent and profit-driven.

The proof lies their enhanced earning power. In the first nine months of the year, the ICBC, BOC, CCB and ABC posted annualized growth of 21.5 percent, 23.7 percent, 21.5 percent and 81.6 percent, respectively, in their operating profits.

The rosy increases came on the back of the country's racing economy, which -- though slowed by the central government due to fears of overheating -- grew 9.5 percent year-on-year from January to September, from the banks' streamlined operations.

Since last year the central government has taken a series of measures to cool down the economy, saying that investment in such sectors as steel, cement, aluminum and real estate are overheated, which could ignite inflation, problems in the banking system and other disasters.

The Big Four took advantage of the initiative to optimize theirloan structures, preventing reckless lending to rushed investmentsor copy-cat projects, while cementing support for agriculture, poor western areas and enterprises with market potentialities.

Correspondingly, the combined investment in agriculture, forestry, fishing and stockbreeding soared 21.4 percent in the first three quarters of the year, 21 percentage points more than the first quarter.

Corporate governance, a relatively new concept in China's financial sector, is highlighted in the banks' operation. Senior Chinese leaders have repeatedly said that government-ordered lending should be prohibited. In August this year the BOC was transformed into a joint-stock bank, followed by the CCB one month later. Both pledge to invite "strategic investors," probably including world famous investment banks, as part of their efforts to modernize and restructure.

The BOC and CCB have both said they would seek stock market offerings, with the former announcing that it will go public in 2005. The ICBC is aiming for 2006. After going public, the banks will have to accept supervision from shareholders, which is expected to help them do more profit-driven and transparent business.

The health of state-owned banks is extremely critical for China as it nears the 2006 deadline for opening its market to foreign banks under its World Trade Organization obligations.

A handful of foreign banks are already licensed to handle Chinese-currency business for foreign companies, a situation that will continue to pose challenges for Chinese banks since their rivals are usually much stronger and more sophisticated.

Asset quality is a big concern for all banks. The China Banking Regulatory Commission, the country's banking watchdog, has been ordering domestic banks to exercise stringent internal control and risk mitigation when issuing loans.

The ICBC has either recovered or written off 33.7 billion yuan (4.08 billion dollars) in non-performing loans (NPLs) in the firstnine months, bringing down its bad debt ratio to 19.46 percent at the end of September. The BOC's and CCB's NPL ratios were lowered to 5.16 percent and 3.74 percent, respectively.

This, however, compares with the world's leading banks' NPL ratios of around 2 percent. Chinese banks still have mountains of bad debt, and international analysts have doubts about on China's drastic decrease of NPLs.

People are also concerned about a number of scandals that have occurred in big Chinese banks recently, such as the corruption and improper approval of lending case of Liu Jinbao, former chief executive of the BOC in Hong Kong.

Although the Big Four's intermediate businesses, such as banking cards, fund sales and individual financing, are growing very fast, "traditional business" remains their bread and butter. The ICBC, for example, attracted as much as 374.2 billion yuan (45.3 billion dollars) in new deposits from January to September. The banks mainly depend on deposits to eke out loans.

The People's Bank of China has raised the benchmark lending and deposit interest rates by 0.27 percentage points. The one-year deposit interest rate increased from 1.98 percent to 2.25 percent, while the one-year lending interest rate rose from 5.31 percent to5.58 percent.

Analysts say that besides curbing inflation and overheating investment, the higher interest rates will help the bank attract more deposits.