Bank of China Ltd. and Temasek Holdings Pte may invest as much as 20 billion yuan ($2.9 billion) to build a rural banking business in China, said two people with knowledge of the matter.

The companies are in talks about setting up as many as 400 rural banks, the people said, declining to be identified because the discussions are private. Bank of China, the country's third-largest lender by market value, would own a controlling stake in the joint venture, they said.

Bank of China, which pulled out of rural banking in the late 1990s, is returning to a market that's attracted HSBC Holdings PLC and Citigroup Inc. as Premier Wen Jiabao pushes to improve the living conditions of China's 700 million rural dwellers.

Zhang Jianping, a Bank of China spokesman, said the Chinese lender is in talks with Temasek, of Singapore, to expand into rural banking services. He declined to comment on the size of the investment. A Temasek spokesman declined to comment.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.