China's Central Banking Regulatory Commission
Brings In Foreign Team
The Central Banking Regulatory Commission, charged with
reforming China's banking sector and making it internationally
competitive, has, for the first time, brought in a foreign
team of banking experts. The new council of international
advisers is thought to be an initiative of Liu Mingkang,
who came to the CBRC after serving as president of the
Bank of China, one of China's big four banks, and vice
governor of the People's Bank of China, China's central
bank.
The council brings together some of the leading names
in international finance. They include Sir Edward George,
former governor of the Bank of England; Gerry Corrigan,
former president of the New York Federal Reserve; Andrew
Crockett, former general manager of the Bank of International
Settlements; David Carse, former deputy chief executive
of the Hong Kong Monetary Authority; and Sir Howard Davies,
former head of the UK's Financial Services Authority.
The addition of the new council brings added leverage
to Liu Mingkang and Zhou Xiaochuan, governor of the People's
Bank of China. The two are the main drivers of international
finance reforms in China's financial industry, and have
often been at loggerheads with provincial and party officials
who fear that they will lose special privileges and power
through financial reform. In order for the council to
be effective, they will have an unprecedented amount of
access to the decision-making apparatus on the party and
government level, and the move represents a major step
in China's opening itself up to international standards
of corporate governance.
Since finance, to a large extent, does not recognize
international boundaries and routinely deals with international
financial instruments, economists and financial experts
in China have been the most forceful advocates of economic
and financial reform.
Without a doubt, one of its major challenges will be
how to get rid of China's massive bad debt load, which
is left over from the country's state-owned enterprises.
This has long been a sensitive topic, and the total amount
is even the subject of intense debate. However, before
China's banks are able to compete effectively, as they
are required to do under WTO regulations, their bad debt
will have to be dealt with by the government. So far,
the government has taken tentative steps toward solving
the problem, but has not come up with a comprehensive
solution. The formation of the new council is a major
step in tackling the issue, and it will be interesting
to see what they propose.
Ironically, financial reform has been delayed this year
by the massive amount of capital inflow to China this
year, which has been estimated at between US$60-100 billion,
and brought liquidity to the market. A significant amount
of this money is speculative, betting that the Chinese
yuan will rise against the dollar. Chinese financial experts
and economists fear that some of the money will find its
way to inefficient, loss-making enterprises and add to
China's bad debt load, which is why the State Reform and
Development Commission (SRDC) has been calling for the
shutting down of smaller automobile and steel makers which
are not competitive. Many of these companies continue
to survive because of the tremendous growth in China's
domestic economy this year, which has fueled demand, especially
commodities, even from inefficient, loss-making enterprises.
The resistance to this move has come from the 31 provincial
governments, which are reluctant to give up their presence
and power in these sectors.
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