Financial Sector Awaits Reform

Home>>Business

Last updated at: (Beijing Time) Saturday, December 08, 2001

Financial Sector Awaits Reform

Only days away from making its World Trade Organization (WTO) membership final, China's financial regulators have a clear picture of what to expect.

Only days away from making its World Trade Organization (WTO) membership final, China's financial regulators have a clear picture of what to expect.

"If Chinese banks cannot make full use of the five-year transitional period and reform themselves thoroughly and speedily, they will lose more of the market," Wu Xiaoling, vice-governor of the central People's Bank of China (PBOC), said on Friday. "There will be consolidation and mergers between Chinese and foreign banks."

Speaking at the fourth annual China Development Forum, the official outlined a road map calibrated with foreign competition in five years, when China gradually opens its financial sector according to its WTO commitments.

Foreign banks will likely see substantial increases in their foreign currency savings business when limitations are lifted immediately after the WTO entry, Wu said.

"They'll attract higher-income clients with their excellent services and sound reputation," she said.

The official said Chinese banks enjoy a much cozier position in local currency renminbi savings since foreign competitors can hardly build a wider network of outlets than the Chinese have erected in the last few decades.

Foreign rivals are likely to rely more on other alternatives, like telephone and online banking, but their operations also will depend on China's development of telephone networks and Internet access.

That will, in turn, curb the growth of renminbi loans by foreign banks, which have been borrowing from the interbank market to finance their lendings, Wu said.

Overseas borrowings by foreign banks operating in China will be supervised by the PBOC in an effort to control the size of China's total foreign debt.

"We're not going back to the planned economy model," Wu said. "We are just seeking moderate control (of external debt) under the principle of prudence."

She predicted that the foreign share of profitable intermediary businesses, like settlements, would rise considerably, from around 12 per cent now.

Foreign banks, accounting for 2 per cent of total banking assets in China, are allowed to provide renminbi-related services to corporate clients three years after the country's WTO entry and to individuals in another two years.

In pursuit of national treatment principles, China is likely to extend preferential policies foreign banks enjoy, most noticeably a 18-percentage-point income tax favour, to their Chinese counterparts, the central banker said.

She would not say what would happen to favourable treatments Chinese banks now enjoy.

As for the stock market, Zhou Xiaochuan, chairman of the China Securities Regulatory Commission, said he believed that shareholding restructurings by foreign firms seeking China listings, required by his commission as a precondition, would not take a long time.

"No matter what kind of company, they can now compete on an equal footing for a listing," he said. "Their shift to a shareholding firm will be completed soon."

While trading in Chinese-only A shares by foreign investors is not required by the WTO framework, the chairman said China would "make gradual advances" in opening up the area.

The top regulator said the biggest challenge is how to improve the quality of listed companies, adding that robust economic growth and huge bank savings signal a bright future for China's stock market.

China's Financial Sector Operates Smoothly