Chinese banks will increasingly opt to list shares at home as China's financial markets mature, a senior banking regulator said on Saturday.

Bank of China, the country's second-largest bank, is set to raise $8 billion next month in an initial public offering (IPO) in Hong Kong that bankers say could reignite a debate over whether it is right for China's big lenders to list overseas.

Broaching the controversy, Jiang Dingzhi, vice-chairman of the China Banking Regulatory Commission, told political and business leaders that banks would continue to raise money overseas but would also issue shares on domestic stock markets.

Some banks have chosen to go public overseas. This was their own decision, based on their circumstances. But I believe that, as China's financial markets develop, more and more banks will raise funds at home, he said at the Boao forum, an annual gathering on Hainan island off China's south coast.

A nationalist backlash unfurled after China Construction Bank <0939.HK> sold $9.2 billion worth of shares in Hong Kong last October in a record offering for a mainland company.

Like Construction Bank, Bank of China has sold strategic stakes in itself to foreign investors. Industrial and Commercial Bank of China , the country's largest, is doing the same ahead of a listing due later this year.

Critics, pointing to a leap in Construction Bank's share price since its flotation, say China is selling the family jewels too cheaply.

They want the banks floated on China's domestic markets, which are clamoring for good-quality names, especially as a fortune in taxpayers' money has been used to write off the banks' bad loans and shore up their balance sheets.

Jiang said the presence of foreign banks was helping Chinese lenders become more efficient.

The entry of foreign strategic investors into China has played a big role in promoting China's banking reform and it has already been proven that their presence has been helpful.

China needed foreign banks not for their capital, but for their advice on improving everything from corporate governance to lending standards, he said.

But foreign investors speaking alongside Jiang vented frustration over the limits on their involvement in China's still fragile but potentially lucrative financial sector.

Foreign investors may own no more than 25 percent of a Chinese bank, while a number of proposed tie-ups between foreign securities firms and domestic brokerages have been put on ice.

Kevan Watts, chairman of Merrill Lynch International Inc., said foreign financial institutions could provide the expertise China needs to raise standards at its banks.

Please let the foreign banks in more and earlier and faster so we can help with the process, he said.

China China Construction Bank