NEW YORK ( TheStreet) -- Investors should be looking past the banking sector to the consumer sector in China, with ETFs such as Claymore/AlphaShares China Small Cap ( HAO) and Global X China Consumer ( CHIQ).The Agricultural Bank of China's IPO is grabbing headlines, but the big news for AgChina has drowned out more negative news for the banking sector. China's government used the banking sector to implement much of its stimulus policy in 2008 and 2009. Banks jumped at the chance to make loans and there's liable to be some amount of bad loans in the mix. Even before these bad loans have emerged, the banks need to raise capital to shore up their balance sheets amid tightening regulations in China. One such regulation passed just this week reduces the amount of loans that banks can package and sell to financial companies. This means the banks will have to hold more assets on their balance sheet and will have to slow their lending growth. Last week, Bank of China said it will raise nearly $9 billion in a rights offering, close to half of the total that AgChina hopes to raise in its IPO. The other large banks in China are in similar positions and will also need to raise capital. The issuance of shares dilutes existing shareholders and the iShares FTSE/Xinhua China 25 ( FXI) has more than 45% of assets in the financial sector, with more than half of those assets in big state owned banks. The rest of the FXI portfolio is also heavy in state-owned industries, especially telecom, energy and basic materials. These companies are less efficiently run than the private sector of the economy. Some investors like the idea of having the Chinese government stand behind their investments, but as the telecom restructuring showed, these companies may also be more tightly regulated, especially those in consumer sensitive areas. For instance, China recently capped coal prices to fight inflation, but prices are still rising and that means domestic coal producers will miss out on profits. Just like in the United States, rising gasoline, electricity, and phone bills spark consumer anger. The companies providing consumer needs are going to face tougher regulations than the companies that produce consumer wants, as the government comes down on the side of social harmony over corporate profits.