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One step back and one step forward on the IPO (initial public offering) of the Agricultural Bank of China.

I’ve repeatedly tabbed this IPO as the indicator I’m watching to figure out the health of China’s stock market in particular and its financial system in general—and to time buys of Chinese stocks.

China’s already publicly traded banks need to raise $40 billion in new capital this year to meet requirements from bank regulators for higher reserve levels and to meet demands from the economy for new loans.

The ability of the Agricultural Bank of China, the weakest of China’s big banks and the last to go public, to sell what was initially pegged at $30 billion in new stock would be a huge vote of confidence in China’s ability to meet both those goals. (For more on this indicator, see this post.)

However, the Hong Kong market isn’t looking especially favorable to this IPO right now. Five companies have pulled about $3.8 billion in potential initial public offerings from the pipeline in the last few weeks because of a faltering market. (For more on the role of real estate in that market weakness, see this post.)

The latest deal to get pulled is the $1.2-billion IPO of China’s second-biggest wind turbine manufacturer, Xinjiang Goldwind Science & Technology.

But there’s good news for the Agricultural Bank of China offering, too.

The Beijing government clearly wants this IPO to go to market and is pulling out all the stops to line up big investors for the shares. Latest to sign on are Cheung Kong Holdings’ (OTC: CHEUY) chairman Li Ka-shing, the third richest individual in Asia, and Henderson Land Development (OTC: HLDCY) chairman Lee Shau Kee, the fourth richest.

The bank has begun pre-marketing its IPO, which involves providing more financial information and forecasts to analysts and investors who are trying to value the company. Right now, it looks as if the offering will bring in something less than the initial $30-billion estimate and something more than the recent $20-billion projection.

The Hong Kong H-share offering is set to begin trading on July 16.

Full disclosure: I don’t own shares of any company mentioned in this post.