Foreign strategic investors should be allowed to buy higher
stakes in China's regional banks, suggested Cheng
Siwei, vice chairman of the Standing Committee of the 10th
National People's Congress, at a forum on November 12.
The forum, with a focus on financial technical innovation and
regional financial development, was organized by Finance
News and the Regional Finance Forum Organizing Office between
November 12 and 14 in Beijing.
According to China's World Trade Organization (WTO) commitments,
it is to full open up its banking sector by the end of 2006. In a
bid to improve their competitive advantage before then, many
Chinese banks have implemented measures such as joint-stock
restructuring, inviting foreign investment, and public listing.
To facilitate market-oriented restructuring, a total of 112
regional commercial banks have already set about courting strategic
investors. Foreign investors have made inroads into banks with
potential profitability including Shanghai Bank, Nanjing City
Commercial Bank, Xi'an City Commercial Bank and Jinan City
Commercial Bank.
Foreign investors can help sort out a domestic bank's systematic
loopholes and shoulder part of the risks as well, Cheng said. He
also said that relevant pricing mechanism should be made clear from
the start.
"You can't simply compare foreign investment and their gains,"
Cheng said, citing China Construction Bank, Bank of China,
Industrial and Commercial Bank of China as examples. After the
three major state-owned banks accepted strategic investors, their
net asset values have increased from 10 to 17 percent. Cheng added
that the Chinese banks are the main beneficiaries of this growth
since they hold the majority stake.
Cheng also refuted allegations that the introduction of
strategic investors will threaten the country's financial
security.
He pointed out that the bank's financial risks are mainly
composed of a low capital-adequacy ratio, high incidence of
non-performing loans, operational risks and internal control
problems as well. The purpose of introducing foreign strategic
investor is to strengthen governance mechanisms and solve the
problems from the inside out.
Current government regulations state that foreign strategic
investors can hold up to a 25 percent stake, and individual
investors up to a 20 percent stake in Chinese banks.
There is much support for reform. Guangdong Development Bank
reportedly put forward a proposal to transfer 51 percent of its
shares to foreign investors, but China Banking Regulatory
Commission officials have denied this, saying that there is no
possibility of this happening in the short term.
In terms of the regional commercial banks, with troublesome
debts and limited influence, they seem to be less attractive to
foreign investors than any of the big-four state-owned commercial
banks. Cheng noted that a 25 percent stakeholding would do little
to improve corporate governance or boost joint-stock restructuring.
Cheng proposed raising the stakeholding ceiling to 33 percent,
arguing that it would not rattle the state's majority
shareholding.
Whether the regulatory authorities accept his proposal remains
to be seen.
(China.org.cn by Tang Fuchun, November 18, 2005)