A team that is mainly comprised of legal experts from the China Banking Regulatory Commission (CBRC), the recently established banking watchdog, has completed a second draft of the China Banking Supervision and Regulation Law, sources say.

Although the rapidity with which the drafting work has been proceeding prompted speculation that the law may be passed by the National People's Congress (NPC) as early as in the first half of next year, some experts have poured cold water on the prospect, citing legislators' differing opinions.

"We don't have a law on securities supervision, nor do we have a law on insurance supervision. Why are we doing this banking supervision law?" asked a legal expert who declined to be named.

Sources said the draft has not yet found a place on the NPC's legislative agenda, which, they say, indicates that it may not be passed as quickly as expected. "That suggests views like mine do have some backing (among legislators)," the expert said.

The CBRC was established in March in a major reform aimed at splitting the central People's Bank of China's bank supervision functions from monetary policy operations, although the People's Bank Law says that the central bank regulates banks.

The commission officially started functioning in April, following a decision by the NPC Standing Committee transferring bank supervisory functions from the central bank.

But some experts argue the time is not yet right for a bank supervision law as, with China's banking reforms still having a long way to go, many key issues are still subject to changes and may likely revise the factual basis on which the law is drafted.

"The reforms (of banks) are not yet finished, their public listing (plans) have yet to be done, and their internal governance still needs much improvement," said Li Shuguang, a law professor with the China University of Political Science and Law. "The commercial banks are not yet real commercial banks."

He continued: "And what if we end up in universal banking?" China's financial supervision system is still based on a policy separating the three sectors of securities, insurance and banking from one another. But it has increasingly become a consensus, among both economists and government officials, that the firewalls shall be torn down sooner or later to boost the competitiveness of Chinese financial institutions.

The judicial powers that the CBRC needs to perform its regulatory functions could instead, Li said, be provided by the more flexible administrative regulations and rules that the State Council can make.

What is more urgent, he said, is the ongoing revisions to the Commercial Bank Law and the People's Bank Law, both of which see the central bank as the regulator of banks.

Sources who have seen the draft law say that rather than outlining a framework for China's bank supervision system, it is more focused on empowering the CBRC.

Some ministries are simply looking for power in related legislation, but often tend to ignore the huge costs in drawing up and enforcing these laws, some experts say.

The 35-clause draft lists 11 responsibilities for the CBRC, sources say, which include formulating supervisory rules and regulations for banking institutions, authorizing the establishment, changes, termination, branching and business scope of banking institutions, as well as investigating and penalizing activities that violate relevant laws and regulations.

One clause authorizes the CBRC to freeze assets of a financial institution under its supervision for as long as 30 days when it decides the institution is suspected of criminal activities and may transfer assets. That will be the first time a Chinese administrative entity has been given semi-judicial powers, and the 30-day freezing period is very excessive, experts say.

"It (the draft law) gives the CBRC too much power, this is likely to lead to infringements on the rights of market participants," said the expert who wished to remain anonymous.

(China Daily July 28, 2003)