The capital infusion into two major state-owned banks shows
China’s determination to solve the stubborn problems of the
financial sector, said Peking University
Professor Li Qingyun, a National People’s Congress (NPC) deputy of
the Jiangxi delegation. But he warned that there are no quick
fixes.
Financial stability is a top concern of the Chinese government.
In his annual report on the work of the government, Premier Wen
Jiaobao stated that financial reform is a matter of urgent
necessity.
The banking sector, the four state-owned banks in particular,
are encumbered with high ratios of non-performing loans (NPLs) and
low capital adequacy ratios. The problems came to the fore when
China began opening the financial sector after its entry into the
WTO in 2001.
“A management mechanism is vital for banks,” Li said. “They
should have the right to run their business independently, while
the government should strengthen macro controls instead of
intervening in their operations.”
Now, the People’s Bank
of China -- the nation’s central bank?-- together with the
China Banking Regulatory Commission, has strengthened credit checks
for lenders to prevent the accumulation of new non-performing
loans. It will also try to pilot a joint-stock system in
state-owned banks to improve governance.
Each of the four major state-owned banks has an asset management
company to help dispose of bad loans.
China announced at the beginning of this year that it had
injected US$45 billion from its forex reserve into the China
Construction Bank and Bank of China, both of which plan overseas
initial public offerings (IPOs) next year. The Industrial and
Commercial Bank of China and Agricultural Bank of China are also
busy preparing for listing.
Li noted that the banks’ problems are closely associated with
China’s state-owned enterprises (SOEs), many of which are deeply in
debt.
“The SOEs need to improve their creditworthiness, and SOE reform
can help the banks to resolve their NPL problems,” he said.
Another solution, Li pointed out, is to promote direct
financing. Currently, Chinese enterprises usually borrow money from
banks rather than raising funds directly in the capital market.
Because the domestic capital market is still relatively
undeveloped, the government is also turning its attention to its
growth.
“It is easy to create bubbles in the capital market. Therefore,
the government should standardize it in order to lay a solid
foundation for future development.”
Li also suggested that government should keep overseas IPOs in
check, as the big SOEs are pillars of the domestic market.
(China.org.cn by staff reporter Tang Fuchun, March 11, 2004)