Agricultural Bank of China’s massive initial public offering, to be priced as early as Tuesday, is testing global investors’ faith in China’s fast-growing economy amid global financial turmoil.

If it hits the high end of its expected $23 billion range, AgBank would raise more money than any other company in history, amid a string of major stock offerings from developing markets this year.

With nearly 24,000 branches and the largest customer base in the world, AgBank and its owner, the Chinese government, are betting investors see it as a proxy for the country’s future economic growth.

However, some of their ambitions for the IPO have already been curbed by concerns among some investors about the outlook for China’s growth, as well as weakness in share prices globally and questions about AgBank’s strategy. This week’s IPO will fall well below the high end of the target range of $20 billion to $30 billion that AgBank was pushing just weeks ago. The shares are expected to price at a valuation below several of its large Chinese peers. Shares will be listed in Hong Kong and Shanghai.

Still, as the share sale ended Monday, demand for AgBank’s shares appeared relatively strong, showing that many investors continue to view China as an engine of the global economy, and highlighting the dominance of developing countries in global capital markets as Europe and the U.S. continue to wobble.

‘The fact that the Chinese government is able to sell a vast amount of shares in what is clearly not its highest-quality bank, during volatile markets, shows how the baton is passing from the developed to emerging markets,’ says Julian Mayo, who helps oversee $3 billion at Charlemagne Capital in London.

The world’s largest IPOs this year have come from Asian and developing countries. The top 10 offerings of the year include firms from China, Russia, Poland and India, none from the U.S. and only one from Western Europe, in Spain.

Linda Csellak, head of Asia Pacific equities for MFC Global Investment Management in Hong Kong, says the strong demand flow of IPOs in Asia is likely to continue. ‘In the U.S. they don’t have the confidence that there is out here,’ she says.

Most economists expect China’s growth to slow this year, due in part to government measures in recent months to rein in zooming property prices and head off a dangerous bubble. China’s benchmark stock index has lost nearly 28% this year, making it one of the world’s worst performing markets.

On Saturday Premier Wen Jiabao said the country’s economic policies ‘face increasing dilemmas’ as the impact of the global financial crisis is more serious than expected. But he reiterated that China won’t hold back its steps to restructure the economy for long-term growth.

To investors, AgBank pitches itself as a modern, commercial lender offering a play on China’s fast-growing economy, especially its newly developing inland regions. In the roadshow for its IPO, AgBank has taken pains to tell investors that its branches don’t lend money to China’s poor farmers.

Yet unlike China’s other major banks, AgBank has an explicit mandate from the government to lift incomes and prospects for China’s poorer, rural citizens and narrow the wealth gap between countryside and city that has become a source of resentment against Communist Party rule.

Analysts say AgBank is likely to continue to struggle to reconcile those disparate identities long after its IPO is over.

‘This is the major tension after the IPO,’ says Yuk-shing Cheng, a professor at the Hong Kong Baptist University. ‘Whenever there is a problem in rural areas the government will want to use AgBank as a conduit to funnel credit there.’

AgBank’s identity confusion also illustrates a broader issue for China’s lenders. The government has tried to revamp them over the past two decades from policy instruments into commercial institutions, but they are still called on to support state policy. Last year, for example, they nearly doubled new lending, to $1.4 trillion, to support government stimulus efforts. That has led to fears of a rebound of bad loans.

In AgBank’s case, the obligations are particularly explicit. In 2007, when China’s leadership formally announced plans to retool the lender to prepare it for an IPO, it also said AgBank would be required to support the agricultural sector as a precondition for going public.

‘Of all of China’s major banks, AgBank’s social obligations are the greatest,’ Chairman Xiang Junbo said in a November interview.

Last month, Financial News, a newspaper published by China’s central bank, ran a commentary saying AgBank needs to play a more active role supporting farmers after its IPO. AgBank ‘needs to strengthen its village loan distribution and inject more people and resources,’ it said.

China’s cabinet decided in 2002 that the four major state banks would become public companies. The three others listed in 2005 and 2006. Industrial & Commercial Bank of China Ltd., the nation’s largest lender, raised a record $22 billion in 2006. AgBank was held back, as concern in Beijing over widening income disparities fueled debate over its proper role.

Today, around 30% of its loans go to areas outside of China’s major cities, in areas loosely categorized as ‘rural’ but which also include towns boasting populations in the tens of thousands.

Bankers on the IPO say the institutional portion of the Hong Kong offering was oversubscribed within the first couple of hours of the shares going on sale, and one banker said the smaller retail portion was fully subscribed as well. The demand is ‘striking’ says Motoshi Nagai, Senior Portfolio Manager at Tokyo-headquartered asset manager DIAM Co.

Already, several large institutions have agreed to take sizable stakes in AgBank as ‘cornerstone’ investors, including two Middle Eastern sovereign-wealth funds, Dutch financial-services firm Rabobank, and U.S. agribusiness group Archer Daniels Midland Co. and one of Hong Kong’s wealthiest individuals.

‘Agricultural Bank has a good branch network in the countryside, and we all know the next driver of the Chinese economy will be urbanization,’ said Mr. Nagai, who is based in Hong Kong.

Dinny McMahon / Alison Tudor