China's First Private Bank Approved
ZheShang Bank has been approved as China's first commercial
bank in China. Based in Zhejiang province along China's
eastern coast, the new entity is based on a restructuring
of Zhejiang Commercial Bank. It will be capitalized at
1.5 billion yuan (US$180 million).
Of its 15 shareholders, 13 will be privately held companies.
One of the shareholders is Wanxiang Group, a large auto-parts
manufacturer.
Zhejiang province is located south of Shanghai, and is
home to many of China's light industries and import/export
businesses. Wenzhou, which is the single Chinese city
with the highest number of private businesses, is a port
city in Zhejiang.
Zhejiang Commercial Bank was originally set up more than
10 years ago as a private joint venture between China's
state-owned Bank of China and Hong Kong's Nanyang Commercial
Bank. The original idea was to allow the JVs in as a toe-hold
to China's commercial bank, and to spur liberalization
of China's state-owned banks.
Events have overtaken the original plans, and with China's
accession to WTO in 2001, foreign banks will be allowed
to compete in China on an even playing ground, beginning
in 2006.
The Chinese government has spent a good deal of its efforts
to privatize China's four leading state-owned commercial
lenders before the big opening in 2006, but so far, their
efforts have not shown any meaningful results. Management
of the banks is still dominated by bureaucrats with entrenched
interests.
China's banks are suffering from excess liquidity. The
Chinese central government has tried to force the banks
to cut back on wasteful lending and bad loans by cutting
back on large wasteful projects. With all the trade, construction
and economic activity now going on in China, the net effect
of these policies are highly debatable.
It is more likely that new privately-owned banks will
play a larger role in China's economy. Unencumbered with
bad bank loans and a bureaucratic management, they will
be free to make lending decisions based on market principles.
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