In 1999, the bank transferred 250 billion yuan (US$30.1 billion) worth of non-performing assets over to China Cinda Asset Management Corp. It still had 267.8 billion yuan (US$32.3 billion) worth of non-performing assets at the end of last year.

By then, the bank's non-performing loans, under the international five-category classification, represented 15.36 percent of all loans.

Yang Xiaoyang, head of the bank's asset-preservation department, said: "If we don't speed up the disposal of non-performing assets, our bank will be unable to get listed so soon."

Zhang Enzhao, the bank's president, said the bank aims to reduce its bad-loan ratio to less than 10 percent within two years.

Yang said: "To achieve this goal, we will have to explore different methods."

China Construction Bank will launch two major auctions this spring and autumn, he said.

Some mortgaged assets, including cars and real estate, will be sold to Chinese and foreign investors.

The two auctions will last for one month each, compared to one week each last year.

"We will make the two auctions famous 'brands' in China Construction Bank's disposal of non-performing loans in the coming years," Yang said.

China Construction Bank is also developing an information-management system to conduct online auctions of mortgaged assets.

"We are now busy training our staff," he said. "The new system will be put into operation in the second half of this year."

Yang said the bank will continue to seek government approval to form a joint venture with the US investment bank Morgan Stanley to dispose of bad assets with a book value of about 4 billion yuan (US$482 million).

"We have tentatively reached an agreement," he said. "We are preparing a formal legal document and will submit it to the government for approval next month or in May."

If approved, the deal would be similar to that pioneered by China's Huarong Asset Management Corp, which won official approval to form joint ventures with foreign investors, Yang said.

"China Construction Bank and Morgan Stanley have agreed on a price for the bad assets and the deal would include some cash and revenue from the disposal of the bad assets through the venture," he said.

But Yang said winning approval for a deal would be tough as the government had yet to give the green light to bad-loan sales by banks to foreign investors, despite Huarong's landmark deals.

"The deal, if successful, would help us move faster in disposing non-performing loans," Yang said.

China Construction Bank is also trying to organize some idle assets, mainly real estate, from coastal areas and major cities in central areas, to sell to foreign investors.

"The bank is expected to take more bold steps to dispose of the bad assets after April," he said, without giving details.

Huang Jinlao, a senior researcher with Bank of China's International Financial Research Institute, said China Construction Bank's efforts to dispose its bad assets more quickly suggest that Chinese commercial banks are busy reforming themselves to compete with their foreign rivals, now that China is in the World Trade Organization.

China's banking industry will have to lower its rate of non-performing loans, get rid of historical financial burdens and raise its capital adequacy to international standards because more and more foreign financial institutions have begun to enter the Chinese mainland market, he said.

The country's commercial bank law stipulates that commercial banks' capital adequacy ratio should be 8 percent, the minimum required by the Basel agreement reached by international banking managers.

This means China's commercial banks, especially the four State-owned banks, will have to achieve that goal before they can be listed, Huang said.

The , the central bank, said that the big four State-owned banks - Agricultural Bank of China, Bank of China, China Construction Bank, the Industrial and Commercial Bank of China - will be transformed into large modern and strongly competitive commercial banks.

Some State-owned commercial banks will be restructured to become State-controlled shareholding commercial banks, the central bank said.

"With the aim of raising capital adequacy, commercial banks will have to reduce the amount of risky assets," Yang said.

The central bank is requiring commercial banks to reduce their bad-loan ratios by 2 to 3 percentage points each year until 2005.

(China Daily March 31, 2003)