Chinese bank shares are now cheap. But they may well become cheaper – especially as many banks are planning another round of preferred share offers, despite generous dividend yields.

There are numerous reasons to be bearish on Chinese banks. One of the main ones is the increasing competition they face from the shadow banks as these become more numerous, powerful and legitimate. The combination of reform from above and market developments from below will make China a fairer place at the same time as the banks come under ever more pressure.

Today the regulators are no longer quite as protective of the state-owned banks as in the past. Instead, they are moving ahead with plans to give banking licences to new entrants, including internet companies, in coming months. The effort to both legitimise and regulate these companies underscores their growing market power in collecting retail funds and putting them in money market funds that pay far more attractive rates than those the banks are allowed to pay on deposits.