China's Cabinet Will Map Out
Financial Changes This Week
BEIJING -- China's cabinet will begin a closed-door meeting Friday to map out fresh overhauls of the financial sector, according to two government officials familiar with the plans.
The two-day conference, led by Premier Wen Jiabao, will likely result in policy decisions to change two key state banks and establish a committee to coordinate policy between financial regulators, one of the officials said.
The meeting will be the third such conference to discuss changes to the country's financial structure since 1997. Planning for the meeting has been under way for more than half a year, and some observers had said it could have been held by the end of 2006.
Beijing pushed through sweeping changes in its financial sector since the last meeting in 2002, giving some flexibility to its currency, launching initial public offerings of stock in four of the country's five biggest state banks, and carrying out share reform for the domestic stock market, which was among the world's best-performing last year.
The meeting is unlikely to yield the wide-ranging overhauls that past meetings have produced, officials and economists say. They say the biggest move may be a comprehensive revamp package for Agricultural Bank of China, the only one of the country's large state commercial banks yet to receive a government capital injection. The package likely will include a government capital injection and removal of bad loans from its books, which would put the bank on track to draw in foreign strategic investors and list shares in an IPO. The primarily rural lender accounts for more than half of the bad loans left in the country's banking system.
There also are indications that the State Council will revamp state policy lender China Development Bank into a commercial entity. The bank might also receive a capital injection from the government as part of changes for policy banks, one official said.
The bank -- under the leadership of its president, Chen Yuan -- has aggressively expanded its lending in recent years, often competing with commercial banks for lending projects and carving out a role as a lead innovator in the country's growing bond market.
Export-Import Bank of China, another policy bank, has said it also is in discussions with the Ministry of Finance to receive a capital injection.
Teams of Chinese regulators have been working on plans for the conference -- which will cover the country's entire financial portfolio including the yuan exchange rate -- since at least the middle of 2006.
Many economists and officials view the meeting as a tool for the State Council, the country's highest administrative body, to raise contentious overhaul issues above the ministerial level to counter turf wars fought by different regulatory agencies for control of the country's financial sector.
One debate that emerged late last year in preparations for the meeting was over whether to create a so-called super financial regulator, modeled after the U.K.'s Financial Services Authority, according to government officials.
China's banking and insurance industries have become increasingly intertwined, and the carving out of a separate banking regulator from the central bank in 2002 has increased competition between agencies for regulatory powers.
Instead of an FSA-like entity, the government is likely to create a financial coordination body, headed by either the central-bank governor or a vice premier, that will meet regularly to discuss overlapping regulatory issues, according to one of the officials.
Officials also are likely to debate changes to Central Huijin Investment Co., a state investment agency that has injected money from the country's foreign-exchange reserves to recapitalize the country's banks and securities firms. As China's foreign-exchange reserves have soared past $1 trillion, becoming the world's largest, government economists have advocated widening the scope of the agency's investment. It remains unclear what types of assets the agency would be allowed to invest in, but economists have suggested Beijing use some of its reserves to buy gold, oil or other long-term strategic assets.
From: Wall Street Journal, By RICK CAREW
Date: January 17, 2007 Back