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China's efforts to beef up its State-owned lenders before the full opening of the banking sector later this year is culminating with a massive listing scheme by the Industrial and Commercial Bank of China (ICBC), the biggest of the five State banks.

 

Three of four other state lenders have already gone public, also installing overseas strategic investors with the aim of introducing advanced management know-how.

 

For years, these banks were regarded as being technically insolvent due to huge bad assets.

 

Thanks to bold, commendable measures including enormous State financial input for capital replenishment and write-offs of bad debt, as well as the listing schemes, the banks are establishing an image as commercially viable institutions.

 

Shares of these banks are enthusiastically snapped up, and have performed well. ICBC, for example, is set to raise US$21.9 billion from the market, making its initial public offering the largest the world has ever seen; its stocks are anticipated to be investors' darlings at the second market.

 

Financial engineering for the restructuring has proven to be successful. Consequently, central Huijin, which represents State interests in the restructured State banks, has witnessed the growth in value of its stakes in the listed banks.

 

However, the dazzling victory in stock market debuts is just the end of the beginning for the banks' transformation from lenders tightly controlled by the State to genuinely competitive institutions standing on their own feet.

 

It is an open secret that part of the reason behind investors' enthusiasm for the Chinese banks is the Chinese economy's rosy prospects and State backing for the banks.

 

As for capabilities in providing quality service and managing risks, which should be central to the competitiveness of any financial institution, the State banks still have a long march.

 

While the State's support can be a strength for the banks, it also has its downside. Currently, the top leaders of the banks remain government appointees, and human resources management still largely follows that in government agencies. Such arrangements, in many cases, can hinder the construction of a business-oriented management structure.

 

In addition, the banks' newly reshuffled executive boards also face the challenge of building more sound decision-making processes and making full use of the wisdom and experience of board members and independent board directors.

 

(China Daily October 24, 2006)