ROYAL Bank of Scotland (RBS) announced a move into China after it led a group of investors in the purchase of a stake in the country's second largest bank for $3.1bn (£1.7bn).

The co-investors will take a ten per cent holding in Bank of China in a move that will allow RBS and the bank to team up in a number of business areas. RBS will provide $1.6bn (£885m) towards the deal.

It follows weeks of speculation that RBS - which owns NatWest bank - was about to step up its presence in the fast-growing Chinese market.

The UK's second largest bank already has more than 30 years' experience providing financial services in China, with its operations including financial market branches in Shanghai and Beijing.

The deal, which is subject to regulatory approval, gives RBS access to a company with 11,307 branches, a 12 per cent share of the loans market in mainland China and 14 per cent of the savings market.

Bank of China was established in 1912 with a traditional focus on trade-related activities.

In 1994, it was converted from a specialised trade bank to a state-owned commercial bank and now has subsidiaries in 27 countries.

The pair will team up on operations such as credit cards, corporate banking and personal insurance and will also work closely in key operational areas such as corporate governance, human resources and IT. RBS will nominate a director to sit on the firm's board.

RBS chairman Sir George Mathewson said the move was an important opportunity.

The company is raising cash to fund the deal by selling £900m of shares in Spain's Banco Santander.