CBRC To Announce Defensive Measures For China's
Financial Sector
Liu Mingkang, chairman of the China Banking Regulatory
Commission, is set to announce a series of measures to
insure that Chinese banks are able to compete against
western retail banks when the Chinese financial sector
opens up in December 2006. Western banks will be allowed
to handle yuan deposits at that date, and the fear is
that they will take away the best commercial business.
Most likely, Liu will announce measures to strengthen
lending and reduce bad loans. In the past few months,
bank managers have been allowed to adjust interest rates
to commercial lenders based on individual risk assessments.
China's state-owned four major banks are still saddled
with more than US$500 billion worth of bad loans, and
are in the process of changing to joint-share companies
which will first list in overseas markets, and then in
China. The four banks account for 70 percent of China's
yuan- denominated loans and 92 percent of bad loans. Recently,
the companies have claimed to have made progress in raising
earnings, which are then used to write off their bad loan
portfolio. Until very recently, the process of bundling
the bad loans into asset management companies had
gone slowly, causing major disappointment among western
investment banks and private equity firms.
In the past month though, the pace of government moves
has picked up. Originally, government agencies did not
want to take responsibility for the sell-off of state-owned
assets, fearing that they would be held accountable for
getting rid of them at prices which were too low. That
attitude has changed.
Earlier in the year, Wen Jiabao announced a US$45 billion
bailout
package to Bank of China and China Construction Bank,
the two largest banks. Wen has said that reform of China's
financial sector is the single greatest economic
challenge the country now faces.
If China introduces non-tariff measures to protect Chinese
banks, this will quickly become another area of trade
contention between the US congress and China. The new
congress is committed to blaming China for the US's own
economic ills, just as Japan was blamed in the 1980s.
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