China should embark on its planned bold attempt at banking reform
to further facilitate the pilot scheme of private banks, urged
leading economists.
The plan needs to be carried out promptly, as the country is faced
with the urgent task of quenching the cash thirst of small and
medium-sized private businesses looking to develop, said experts
addressing the Symposium on China's Financial Reform and Securities
Market Reform, held over the weekend.
"Establishing private banks is one of the core reforms in the
highly risk-sensitive banking industry. Experimental work is thus
essential," chief economist of the Asian Development Bank Resident
Mission in China, Tang Min, told the symposium, which was jointly
sponsored by Peking University and the University of Hong Kong.
"We stress the urge to execute the plan swiftly as we may need more
than three to five years to see the results of the pilot scheme,"
said Tang.
Media reports earlier revealed that plans for a final private bank
pilot scheme had been submitted to the regulatory authorities for
approval, drafted by the Great Wall Finance Research Institute,
which groups some of the top economists in China.
One of the main reasons for establishing private banks is to help
finance the development of the non-State sector, which is not
adequately served by the four largest State banks and existing
shareholding commercial banks, say experts.
Some of the country's largest private enterprises have been urging
a policy change, anticipating that their stakes in private banks
will give them access to easy finance and new channels to gain a
foothold in the financial industry.
The government, however, has been cautious over the establishment
of private banks, recalling the difficulties that occurred in the
early 1990s, when private funds flooded the then newly accessible
urban credit co-operatives, forcing the government to later rein in
the banking industry.
"Private capital is not naturally unreliable. The tangled private
financing arose from misinterpretation of government policies,"
said Yi Gang, senior researcher with the central People's Bank of
China, adding: "Some people forecast the new access to the banking
industry would be only short term and their actions went against
the government's intention."
Yi
told the symposium that China's banking industry, now accessed by
both State and foreign funds, should be equitable to private
capital, and the government needs to further improve its regulatory
forces.
"One primary principle is that private banks cannot make loans to
their private shareholders," said Yi.
Experts say that the government needs to introduce change, but in
the process exert and proceed with caution.
"Unrestrained reform may cause more havoc to the banking industry
than no reform at all," said Tang.
(China Daily January 20, 2003)