China races against time in reform of State-owned commercial banks
(Xinhua)
Updated: 2004-03-06 15:17

China vowed Saturday to get its major State-owned commercial banks ready for challenges from their overseas rivals before 2006, in what experts described as a move to determine the country's development in coming two decades.

Delivering the government's budget report to the country's top legislature, Chinese Finance Minister Jin Renqing said Saturday China would in 2004 continue the reform of the financial system to prevent and reduce financial risks, focusing on introducing a shareholding system in the State-owned banks.

The remarks follow Friday's declaration by Premier Wen Jiabao in his annual state-of-the-nation address that China needs to " accelerate the reform of the wholly state-owned commercial banks".

The reform aims to set up a corporate governance system for its banks. The Bank of China and the China Construction Bank (CCB), which are preparing for overseas listing, were ordered to have all necessary elements of a standard joint-stock bank, for example, the general meeting of shareholders, board of directors and board of supervisors.

China has promised to open its banking business + in all places and all currencies + to foreign banks in 2006. However, China's major banks are still beleaguered by lack of corporate governance, high non-performing loan ratios and low capital adequacy ratio.

Chen Yaoxian, member of the National Committee of the Chinese People's Consultative Conference (CPPCC) and former vice-chairman of China Securities Regulatory Commission, said the banking reform is a major step in right direction since China's debt-ridden banking sector is not competitive with serious hidden risks.

International experience shows the biggest risk for a developing nation is financial crisis, which may trigger social and political crisis, said Chen.

Premier Wen has said financial security is an issue with a vital bearing on the overall situation since finance constitutes the core of modern economy and an important lever in regulating the macro-economy.

The Chinese government gave each of the two banks 22.5 billion US dollars late last year from its foreign exchange reserves to boost their balance sheets in preparation for stockmarket listing, ordering them to clean up their tattered loan books and improve lending practices to become internationally competitive banking firms.