China agreed yesterday to buy up to a £6.6 billion (€9.8 billion) share of Barclays bank, its biggest stake in a foreign company, as the country’s confidence as an international investor continues to grow (see Commentary, facing page).

The investment by the China Development Bank (CDB) in the British company potentially dwarfs China’s previous record foreign purchase – a $3 billion (£1.5 billion) holding in Blackstone, the private equity firm, bought in May. In turn, Blackstone advised the CDB on its deal with Barclays.

Chen Yuan, the governor of the CDB and a member of the State Council, the Chinese Cabinet, will take a seat on the board of Barclays. The agreement between the banks was discussed with Gordon Brown before it was signed yesterday at 5am.

Barclays hopes that cash raised by the deal, and a simultaneous £2.4 billion share sale to Temasek, the Singapore Government’s $80 billion investment fund, will help it to win a vicious takeover battle for ABN Amro, the Dutch bank.

Yesterday the British bank announced a revised offer for ABN, which, at €67.5 billion with a 37 per cent cash component, is about €2.7 billion higher than its previous all-share bid.

The offer is still lower than that of a rival Royal Bank of Scotland-led consortium, which has offered €71.1 billion with 93 per cent cash.

Barclays hopes that the prospect of a lucrative tie-up with the CDB will help to push up the bank’s share price, closing the gap between the bids by the time that ABN shareholders vote on the sale in September.

The CDB helps state-owned companies to do better business, both domestically and internationally, and Barclays plans to be the CDB’s provider of commercial banking products.

The bank has until August 6 to issue its formal offer documents. John Varley, the Barclays chief executive, indicated yesterday that he would not increase his offer further.

He said: “We’ve put an enticing cream cake on the table for ABN shareholders. We are not going to top it up with cream.”

The price of the bank’s shares rose 3 per cent to 735p each on the announcement yesterday, but shareholders said that it would have to climb to about 800p before the strategic benefits of the combined ABN-Barclays group, and the additional business from the CDB, outweighed the lure of up-front cash.

One investor said: “You can’t spend long-term strategy now.”

RBS shrugged off the prospect of additional heated competition from Barclays. A spokesman said: “Our offer is still worth more, offers more value and greater certainty, with greater cash.”

Under the terms of Barclays’ agreement with its two new investors, the CDB will buy shares at 720p each, taking a 3.1 per cent stake in the bank, worth €2.2 billion. If the deal with ABN goes ahead, the CDB will buy shares at 740p each to increase its stake to as much as €9.8 billion.

Temasek will take an initial 2.1 per cent share, worth €1.4 billion, then a further share worth about €2.2 billion, at the same prices. Barclays will use this money to make up, in part, the cash element of its bid for the Dutch bank.

To entice the hedge funds that make up an estimated 40 per cent of ABN’s shareholders, Barclays will allow some investors to be paid in cash and others in paper. Once the acquisition is complete, existing Barclays shareholders will be able to claw back up to €2.5 billion of the 740p shares allocated to the CDB and Temasek. To avoid dilution of its stock, Barclays will buy back €3.6 billion of shares in the open market. Barclays also said yesterday that its pretax profit rose 12 per cent to £4.1 billion in the six months to June 31.

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