(PBOC), the central bank, in March during the annual parliament session.
The parliament session would complete China's leadership transition.
Bank of China President Liu Mingkang will quit to take charge of the new banking regulatory body, sources said on condition of anonymity.
"China is expected to strengthen supervision over its banking sector by separating the banking regulatory body from the central bank," Huang Jinlao, deputy director of the Institute of International Finance under the Bank of China, told Business Weekly.
"The PBOC will then be mainly in charge of formulating and implementing monetary policies," Huang added.
Top government officials are expected to meet this month to discuss the reform plan, banking and government sources said.
China will set up a new banking body this year to take over the central bank's role as financial watchdog, a senior official with a PBOC regional branch said.
It was unclear whether the new body would be a department of the central bank, or if it would report to the State Council, China's cabinet.
The regulatory body would be patterned on the system - the central bank handles monetary policy while a separate government body oversees regulatory issues - used in many western countries, said an economist, involved in China's banking reforms, with the Chinese Academy of Social Sciences.
The financial watchdog will have similar powers as the China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC), analysts said.
CSRC and CIRC are in charge of drafting industry rules and catching and punishing violators.
Analysts expect China's banking laws will be revised after the regulatory body is established.
"The main purpose is to rein in financial risks, which are still relatively high," said a senior economist with the State Information Center, a top government think-tank.
The reforms come as China's banks grapple with massive bad loans. The problem threatens China's economic growth.
China's next government, which will be installed in March, is expected to launch new reforms aimed at improving the banking system.
"The disposal of non-performing loans tops the list of major tasks awaiting the new government," Huang said.
"Efforts are also needed to help small businesses with financing," Huang added.
China is also opening its financial sector wider to foreign banks, which analysts expect will ratchet up the pressure on domestic firms.
The move would be the latest in a sweeping reshuffle that began in November at the Communist Party of China's 16th congress.
Late last month, Zhou Xiaochuan, CSRC chairman, was appointed PBOC governor. Dai Xianglong, who had headed the PBOC for eight years, left the post to become mayor of Tianjin.
Zhou's position as China's top securities regulator will be filled by Shang Fulin, president of the Agricultural Bank of China.
Shang faces the challenge of shoring up interest in Asia's second-biggest stock market, where the key index has fallen by one-third in the past two years.
(Business Weekly January 14, 2003)
