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Stability achieved; now, efficiency (2)

By Wu Qing  (China Daily)

13:17, October 08, 2012

The opening-up process was supposed to be a three-phased process with significant developments during WTO entry, two years after entry and five years after entry.

The shareholding system reform of State-owned commercial banks was conducted under the auspices of the banks' head office. Under this program, senior executives of the banks tried to find their own buyers. This approach was not reasonable, but that is essentially what happens in urgent situations. As a result of the bargain between domestic and foreign bankers a creative win-win situation was created by which the Chinese side maintained financial stability, while foreign investors made profits.

The trick behind the process was that the State-owned banks opened up creatively by transforming their major foreign competitors into their own shareholders, thereby interlinking their interests. Thus a showdown was avoided.

Based on my observations, there are two lines of thought:

Although long-term interests are the sum total of short-term interests, even if the maximization of short-term interests is sustained and successfully achieved, it does not automatically lead to the maximization of long-term interests; on the contrary, it is possible to deviate from the goal.

The same applies to overall and partial interests. Which means the results of bank reform during the past decade need to be further assessed to see if they are achieved at the expense of long-term, overall interests.

【1】 【2】

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