In the wake of Premier Wen Jiabao's assurances to his US audience on Tuesday that market-oriented reforms of China's State commercial banks will be launched in the next six months, the domestic banking sector should shift their remaking into the highest gear right now.

Though there is still about three years to go before the country is obliged to remove all the geographic and customer limitations on foreign banks, the time left for domestic banks to transform themselves into competitive players in the home market is not so generous.

Eligible foreign banks are now permitted to provide renminbi services to Chinese enterprises for the first time as the country promised upon its entry into the World Trade Organization two year ago. It is quite predictable that foreign rivals will begin to grab a fat slice of the domestic market, especially from the high-end client pool in coming months.

The premier knows well where the weakness of domestic banks lies. A huge mountain of non-performing loans, inadequate capital and poor profitability all are drags on banks' reform.

The government has already stepped up its efforts to pump out a series of supportive measures to facilitate banks' revamps.

On Tuesday, the China Bank Regulatory Commission allowed domestic banks to recapitalize by issuing subordinated bonds. The following day the People's Bank of China decided to widen the range by which interest rates are allowed to float.

On the one hand, enhanced capital bases will financially equip domestic banks to boost growth of their business. In the banking sector, after all, size does matter.

On the other hand, more autonomy in pricing their main financial product - loans - will enable domestic banks to raise their profitability according to their ability to identify risks.

But these preferential policies alone will not secure a foothold for domestic banks in future market competition. Only an all-out endeavor to upgrade their corporate governance can bring them into full play and root their competitiveness in the market.

With more and more supportive measures being put in place as required conditions, it is time for the banking sector to accelerate painful but necessary market-oriented reforms.

But they must keep in mind that the prize for their thorough reform is not the privilege to raise funds from the stock market, but their very survival.

(China Daily December 12, 2003)