The Commonwealth Bank might come under pressure to review the carrying value of its minority stake in a Chinese banking joint venture following a sustained fall in the share price performance of the company. CBA owns 18 per cent of the Bank of Hangzhou, which is partly listed on the Shanghai stock exchange. The market value of CBA's stake - as measured by the trading price on the Shanghai stock market - has taken a beating in the last 12 months as foreign investors have reduced their exposures to Chinese banks amid concerns over opaque reporting standards and the introduction of stricter capital controls. The Bank of Hangzhou issued new shares for the partial stock market listing in October 2016, which had the immediate effect of diluting CBA's interest from 20 per cent to 18 per cent. While the share price peaked at almost 27 Yuan soon after listing, the stock this week has been trading below 12 Yuan. CBA has continued to increase the carrying value of its minority stake in its financial accounts by using an equity accounting method that is focused on profit performance and the retained earnings of the joint venture. On June 30 last year CBA boosted the carrying value marginally to A$ 1.41 billion. The bank's valuation has almost doubled since 2014 when it was reported at $772 million. Under the equity accounting treatment CBA has been justified in upping the valuation because the retained earnings of the Hangzhou business have been growing. The company increased its annual profit last year by 13 per cent. In 2016 annual earnings grew by around 7 per cent. However, a potential problem for CBA could emerge if it decided to offload its investment in the joint venture. CBA cannot sell its stake before October next year because of special undertakings it has given Chinese regulators. However, CBA is already pruning its investments in Asia, with the sale of part of its Vietnamese banking operation last year and the planned offload of its Indonesian life business. New chief executive Matt Comyn has signalled that selling of non-core assets will be a strategic priority for his management team. If the Bank of Hangzhou's stock continues to trade at depressed levels on the Shanghai exchange, any future sale of the stake might trigger a loss for the Australian major bank. That is because there is such a gulf between the valuation of the Hangzhou banking business by Shanghai investors and the equity accounting measure that CBA uses. According to Reuters Financial Intelligence, the Bank of Hangzhou trades on an earnings multiple of 11, which is almost half average PE ratio of all banks listed on the Shanghai market. Bank analysts are alert to the issue, but CLSA's Brian Johnson suspects CBA might contemplate exiting the joint venture to free up its capital position. Under local banking standards, APRA does not recognise as