Investors who are unloading their stakes in Chinese banks also appear as though they will not completely retreat from the country. According to a report by the Reuters News Agency, the RBS could still retain a presence in China through its joint ventures with BOC in credit cards and wealth management. It also inherited an 18-branch banking network on the mainland through its takeover of the Dutch lender ABN Amro Bank Holding N.V. in October 2007.

Although BOA recently sold some of its stake in CCB, it continues to be the Chinese bank's second largest shareholder. It previously had positioned itself for the share sale by increasing its interest in CCB to 19.13 percent last November. In the meantime, BOA and the RBS recently announced that they would remain committed to their business relationships with their Chinese partners and that they have confidence in the mainland market. In response, the Chinese banks have expressed an understanding and a willingness to continue the cooperation.

But some analysts have raised suspicions about whether the foreign banks are making the right decisions to scale back their footholds in China.

"Given the deep potential of China's relatively underdeveloped banking sector, the foreign banks might one day regret having forgone a golden opportunity in the world's most promising market," said Lian Ping. "It's a loss for the foreigners, but not the Chinese."

Resilience of Chinese banks

While it remains to be seen whether the arbitrage rush has come to an end, its impact on the Chinese banks is widely believed to be minimal.

"The foreign sales may slightly shake investor confidence in Chinese bank shares, but will by no means impact the banks' operations given their limited scales," said Guo Tianyong.

Moreover, the Chinese banks have improved enough in the areas of corporate governance and risk control to properly handle any disruptions, he said.

"Chinese banks are capable of digging their way out of the downturn on their own," Guo said. "It's, after all, not a permanent solution to rely on foreign investors as driving forces."

Lu Zhengwei, a senior economist at the Industrial Bank Co. Ltd., agreed with Guo.

"It's unnecessary for the Chinese bankers to overreact to the foreign sales," Lu said in an industry report. "They should now focus their attention on how to ride out looming slowdown fears."

Although the country's banking sector still needs time to completely turn itself around, signs have been emerging that it has started to revive. The latest data from the China Banking Regulatory Commission indicate that the bad loan ratio of domestic commercial banks had dropped to 2.45 percent by the end of 2008 from 6.16 percent in 2007.

Analysts say the rosy figure will bode well for a recovery of the banking sector this year along with a series of government support measures, including the cancellation of bank lending restrictions. But more government assistance is still needed to help the banks weather the downturn, they said. Some even suggested that China Investment Corp., the nation's sovereign wealth fund, should snap up the shares of Chinese banks listed on the Hong Kong Stock Exchange to prop up the slumping markets.

This would provide some solid ground for the markets and help rebuild investor confidence, said Lu Zhengwei. But from the long-term perspective, an over-concentration of shares may not help to improve the corporate governance of the banks or stabilize their operations, he added.