SMALL IS BEAUTIFUL. Bigger is not always better in China’s financial sector. A trio of state-owned lending giants including the $296 billion Industrial and Commercial Bank of China each reported a surge in fourth-quarter net profit of over 40% from a year earlier. That’s a huge improvement from previous quarters, when banks were directed by Beijing to lend to pandemic-battered sectors resulting in heavy loan-loss provisions. Beat-up valuations are due a boost: CICC analysts reckon local bank stocks, most of which trade at less than 1 time book value, may rise over 40% over the next year. Still, nimbler and more profitable peers like the $200 billion China Merchants Bank look stronger and better-positioned to benefit from China’s economic recovery. CMB’s non-performing loan ratio, for example, has fallen, compared to ICBC’s, which rose slightly in the latest quarter. And as regulators clamp down on online consumer credit firms like Jack Ma’s Ant, a strong retail network and vast micro-lending operation will help CMB win market share. (By Yawen Chen)