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UPDATE 3-China launches private bank pilot programme

* Bank regulator approves 10 firms for private bank pilot

* Move aims to channel more loans to small, private companies

* Five private banks planned, each with two joint investors

* Pilot will begin in four wealthy provinces

BEIJING, March 11 (Reuters) - China will launch pilot programmes testing the development of privately-owned banks in Tianjin, Shanghai, Zhejiang and Guangdong, the country's bank regulator Shang Fulin said on Tuesday.

The pilot, which was approved by China's government in January, is the first tentative step by the country to open its closely-guarded banking sector to private investors.

The China Banking Regulatory Commission named 10 companies it has approved to participate in the pilot project. These include e-commerce giants Alibaba and Tencent Holdings Ltd - both of which are already competing with banks for depositors by selling high-yielding wealth management products online.

In the pilot, five banks will be established, each with two companies as joint investors, the CBRC said.

The other private companies that CBRC approved are:

- auto parts manufacturer Wanxiang China Holdings Co Ltd

- airline operator JuneYao Group

- diversified conglomerate Fosun International Ltd

- Shenzhen Baiyetuan Investment Co Ltd, the largest shareholder of Joincare Pharmaceutical Industry Group Co.

- Tianjin Shanghui Investment Co Ltd, a subsidiary of pharmaceutical conglomerate Tasly Holding Group Co Ltd;

- copper materials producer Huabei Group

- power plant equipment producer Chint Group.

- petrochemical and plastics conglomerate Huafeng Group

AIDING SMALL FIRMS

Alibaba is applying for the licence through its affiliated Small and Microfinancial Services Group, which includes online payment unit Alipay as well as its shareholding in Alibaba's micro-finance unit, Zhongan Insurance, and Tianhong Asset Management Co.

"The Small and Micro Financial Services Group will apply for the license together with China Wanxiang Holding Co. Ltd; we are currently preparing the relevant application materials so have no further information to share at this time," an Alibaba Small and Micro Financial Services Group spokeswoman told Reuters via email.

Wanxiang Holdings is part of Hangzhou-based Wanxiang Group, China's biggest auto parts company built by billionaire Lu Guanqiu.

Tencent was not available for immediate comment.

Economists have long decried the tendency of China's state-dominated banking system to grant loans primarily to large state-owned firms, even as small- and medium-sized-enterprises (SMEs) account for 60 percent of gross domestic product and around 75 percent of new jobs.

But banks and officials warn that even if regulators move aggressively to permit privately-owned banks, it won't provide an immediate solution to SME financing.

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