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Last updated at: (Beijing Time) Friday, July 19, 2002

News Analysis: Banks Launch New Round of Reforms

China's four State-owned commercial banks have become more outspoken about their operationsand reforms. The publishing of the rate of non-performing loans, formerly kept a top secret, is an evidence.


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China's four State-owned commercial banks have become more outspoken about their operations and reforms. The publishing of the rate of non-performing loans, formerly kept a top secret, is an evidence.

The Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank and the Agricultural Bank of China hold a crucial position in China's national economy. The central government has required them to sort out their assets and restructure into "true commercial banks" within five years in order to compete in a market that will then be fully opened to foreign financial institutions.

The four banks' latest moves were all associated with deep-level reforms in the banking system, including corporate governance and ownership reforms.

In April the ICBC became the first to make public its non-performing asset rate, and was followed by the CCB and the BOC.

This was not a coincidence as the central bank subsequently published procedures governing commercial banks' information releases. It is a deliberate move by the central bank to increase the transparency of commercial banks.

Although central bank officials denied that the procedures are a preparation for listing State-owned commercial banks, the "big four" have made public their plans to get listed after finishing the new round of reforms, and most of them have hired international accounting firms to audit their books and assess their assets and operations.

At the same time, they have separately announced that major steps will be taken to restructure corporate governance, including a new incentive and restraining mechanism and a new payment system. The BOC has gone a step further, saying it plans to hire a foreign expert as its general manager in a bid to draw on advanced international experience.

Experts hold that the timing of the new round of banking reforms is closely linked to China's entry into the World Trade Organization. The agreements between China and WTO require that in five years foreign financial institutions will be treated the same as national institutions. If the "big four" can not solve their problems and improve their competitiveness in an all-round way by then, they may not survive.

Already foreign banks have put considerable pressure on Chinese banks by offering more and better financial services.

Dai Xianglong, governor of the central bank, recently summarized the new round of banking reforms: in five or so years the "big four" will be transformed into large modern and strongly competitive commercial banks and some State-owned commercial banks will be restructured to become State-controlled shareholding commercial banks.

He said that the major tasks for the "big four" are to improve the corporate governance structure, lower the rate of non-performing loans, get rid of historical financial burdens and raise their capital adequacy to international standards.

Banking reforms over the past few years have focused on curing the after effects of the planned economy, while the upcoming reforms will be crucial to pushing banks into the market. All the banks have to work hard to streamline their overstaffed systems to improve efficiency.

The presidents of the "big four" have all shown their confidence in the reforms. BOC President Liu Mingkang told reporters at the Asian Development Bank annual meetings in May in Shanghai, "We have set our targets, and are sure we will reach them."

Cutting down non-performing loans has become a priority of the reforms, with impressive results being achieved. According to published figures, the non-performing rate of the "big four" is about 25 percent, and the central bank has asked them to lower this figure to less than 15 percent in five years.

The good news is that non-performing loans began to drop at the end of 2000. In 2001 the non-performing rate dropped 3.3 percent on average, and in the first half of this year the combined non-performing loans of the four banks dropped by 39.3 billion yuan (about 4.75 billion US dollars), or 2.26 percent.

The central bank's assistant governor Li Ruogu said that the Chinese government and the central bank have full confidence in the on-going reforms. Five years from now, China's State-owned banks will certainly be able to compete with foreign banks, and will make a great contribution to China's development.


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