China's top-level conference for the development of the
financial sector, to be held today and tomorrow in Beijing, will
chart the guidelines for the next stage reforms.
Far-reaching decisions could be made at or shortly after the
Central Financial Work Conference on some lingering issues that
hold the key not only to the fate of the financial sector, but also
to the nation's overall development prospects.
The previous two meetings were held in 1997 and 2002, each
generating substantial reforming steps.
The remodeling of management mechanism for State interests in
financial institutions is expected to be the issue that attracts
most attention at the 2007 conference because of profound
implications from a remodeling. But it is also the most difficult
one on which a final decision is made at the conference.
Two major proposals were floated on this. The first one, which
appeared to be the front-runner at the moment, is to invest the
Central Huijin Investment Ltd Co, a financial holding company under
the central bank, with a more independent role in administrating
State assets in financial institutions.
Huijin, created in 2003, holds controlling stakes at two major
State banks, a 50 per cent share at the
Industrial and Commercial Bank of China, and shares in
many other financial institutions.
The other proposal is to establish a new government agency based
on the Ministry of Finance's Financial Department, which is
currently also a major supervisor for State-owned financial
institutions' financial affairs.
Huijin was also tipped as the institution to be responsible for
the management of the nation's hefty foreign exchange reserves,
which is expected to be another key topic at the conference.
Other major topics to be discussed at the conference include
modification of the sector's regulatory framework, and the formula
for the restructuring of the Agricultural Bank of China, the
weakest one among major State banks and the last one to be
revamped.
The government has kept a low key about the conference, partly
because of sensitivity of the issues to be discussed.
Industrial insiders said about ten task forces, spearheaded by
high-ranking financial officials, were formed to work on different
issues and to provide policy recommendations to top decision
makers.
Management of State interests in major financial institutions
was among issues that have been hotly discussed.
The crux of the issue is how to strike the right balance between
maintaining appropriate State control over these institutions and
installing a market-oriented mechanism, which is crucial for the
financial institutions' efficiency.
The State-owned Assets Supervision and Administration Commission
is now the sole representative for State ownership in major
non-financial State companies. Financial institutions were not put
under the umbrella of the commission to avoid the financial
institutions being forced by the commission to support
non-financial firms.
But there has been no single body that is solely responsible for
supervising the financial institutions. Both the Ministry of
Finance and Huijin have some say. As for personnel, top executives
are appointed by the central government.
It is obvious that this fragmented supervisory mechanism is a
hindrance in making the banks truly commercially viable
institutions.
Reform of financial sector is believed to an item high on
China's unfinished agenda of economic reforms because an efficient
allocation of financial resources is vital to an economy.
Four asset management companies were set up after the 1997
conference to take over massive non-performing loans from the four
State banks, which at the time were believed to be technically
insolvent. The 2002 gathering led to establishment of the China
Banking Regulatory Commission and restructuring schemes that
eventually led to three major State banks' listings at
international and domestic stock markets.
(China Daily January 19, 2007)