By Ma Hongman (China Daily)
Updated: 2007-12-03 07:44

There has been a lot of debate and news since the launch on November 19 of a national program by Chinese banks allowing customers to deposit, withdraw, transfer, and check the balance of their accounts at any banking outlet.

Many have praised the program because it allows customers to perform all these tasks to their bank accounts at the outlet of one bank even if they opened their accounts in another. So they are able to choose the less busy outlets or the ones closer to them thereby saving time and the trouble of waiting in long queues.

However, there are differing opinions, most stemming from the fees associated with these new procedures.

On November 23, Zhang Ming, secretary-general of the Beijing Consumers' Association, said the fees were set at such a high level that the State-owned commercial banks were probably trying to manipulate fees because of their monopoly position and were therefore harming market competition.

Zhang's charge reveals the core of competition among financial institutions in China, and it is necessary to analyze opinions about the new program.

The program was initiated by the People's Bank of China, the central bank, in the hope of shortening the long customer queues at bank outlets. It was also to improve the overall efficiency of bank services and share resources among different banks.

This well-meant intention has regrettably been greeted by market players' concern about their own commercial interests.

The four State-owned commercial banks, the Industrial and Commercial Bank of China, the Agricultural Bank of China, Bank of China and the China Construction Bank, have universally imposed heavy fees for their services on accounts originally opened in other banks.

According to the stipulations, clients have to pay the "big four" 1 percent of the sum they deposit, withdraw or transfer from their accounts in other banks. And the sum involved must be less than 30,000 yuan ($3,957) each time.

This high charge by the "big four" has aroused wide public concern. A survey conducted by the Web portal sina.com showed about 95 percent of the more than 86,000 respondents said the fee was too high.

The financial supervision department of the People's Bank of China responded to Zhang Ming's accusation of financial monopoly by saying that "the commercial banks were participating in the program according to their own decisions. The central bank had not set the fees and does not have the right to intervene their daily commercial business".

Admittedly, the commercial banks cannot be forced to participate in the program, but this fact does not justify the supervising authorities not setting the standard of fees.

Currently, the "big four" agree with each other by charging 1 percent for the new procedures, while nearly all share holding banks collect only 0.1 percent, one-tenth of the previous amount.

The lower fee does not give the share holding banks any advantages in market competition.

With a monopoly position in China's financial market, the "big four" have extensive outlets and networks which enhance their competitive edge.

As a result, they are less concerned about inadequate outlets to serve their clients.

Under the new program, the share holding banks, which are smaller in size and have fewer outlets, would benefit if their clients could use the outlets of the "big four" to access their accounts.

Thus, the new program is actually weakening the position of the "big four" in competition with the smaller banks. Worse, it is like asking the "big four" to put their most important resources into the hands of their competitors.

The best option for the "big four" under these circumstances would have been to refuse to participate in the new program, something not easily done. Therefore, they switched to the second best option, charging expensively, to defend their market monopoly.

The market response to the new program has proved that.

As mentioned above, most people think it too expensive to pay 1 percent for deposits, withdrawals or transfers. One of the respondents said the charge was even higher than what he would spend going to his bank's outlet by taxi. And most media reports observed there were few customers making use of the new options in the first week of its introduction.

It is well known that a market only prospers when demand and supply are both active. The higher-than-reasonable fees of the "big four" have not triggered public demand for the new services, making it impossible for the market to grow from the outset.

The high charge is, in fact, another way of the "big four" showing their reluctance to participate in the new program, and it has hindered the introduction of a better banking system.

It is, therefore, worthwhile for the authorities to consider how to improve current arrangements to achieve their original policy target.

The authorities were right to insist on the rule of the market economy and avoid intervening in the daily commercial decisions of banks. But it should also fully take into consideration the distortion of the financial market by the monopolies.

A pragmatic option is for the authorities to set the program's fees according to the real costs to banks. This would boost public interest.

The author holds a doctorate in economics from the Shanghai Academy of Social Sciences

(China Daily 12/03/2007 page4)