The State Council, China's cabinet, opened its third Central
Financial Work Conference on Friday which will lay out plans for
the country's financial system over the coming few years.
Far-reaching decisions will be established at the Central
Financial Work Conference on some lingering issues crucial 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 mechanisms concerning state
interests in financial institutions should dominate 2007 conference
due to the profound implications emerging from a remodeling.
However, it may prove to be one of the toughest issues to settle at
the conference.
Two major proposals were floated on this. The first one, the
current favorite, is to give the Central Huijin Investment Ltd Co,
a financial holding company under the central bank, 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 percent share at the Industrial and Commercial
Bank of China, and shares in a myriad of financial
institutions.
The other proposal is to establish a new government agency based
on the Ministry of Finance's Financial Department, currently
another major supervisor for state-owned financial institutions'
financial affairs.
Huijin was also tipped to be responsible for the management of
the nation's hefty foreign exchange reserves, undoubtedly another
key topic at the conference.
Other major topics to be discussed include modifying the
sector's regulatory framework, and the restructuring of the
Agricultural Bank of China, the weakest one among major state banks
and the last one awaiting a revamp.
The government has kept a low key about the conference, partly
due to the 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 the balancing act required 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
placed under the same aegis to avoid financial institutions being
forced by the commission to support non-financial firms.
Therefore, 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 while in terms of
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 the financial sector is believed to be high atop
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 the establishment of the China
Banking Regulatory Commission and restructuring schemes that
eventually led to three major state banks' listings on
international and domestic stock markets.
(Xinhua, China Daily January 19, 2007)