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China's central bank inches toward
market
BEIJING - The
People's Bank of China (PBoC) has unveiled further
steps to promote the liberalization of its
interest rate regime. Analysts say the steps
demonstrate a firm commitment to press ahead
reforms will help banks adopt to a market economy
environment, but cause short-term difficulties
among weaker lenders.
The central bank on
Monday listed the moves in the pipeline in a
report published on its website. The bank said it
would unify interest rate policies of all
financial institutions, revise related rules and
regulations, and help banks improve their skills
in pricing loans. The steps would also promote the
development of financial markets and enhance the
PBoC's own ability in guiding interest rates and
supervising the market.
The bank has been
loosening controls on interest rates in recent
years. Such controls have distorted the price of
money, reduced the efficiency of the financial
sector and have blunted Chinese banks' sensitivity
to market risks, analysts say. After setting free
interest rates in the interbank market and those
on large-sum foreign currency deposits, the
central bank removed the upper limit on lending
rates by commercial banks late last year. It
allowed them to lower rates on deposits, but kept
the ban on raising deposit rates.
The PBoC
said it would promote the liberalization of
deposit rates by loosening threshold requirements
on large deposit agreements. Interest rates on
these are typically negotiated between the banks
and institutional depositors. As for foreign
currency-denominated deposits, the central bank
currently dictates rates for deposits smaller than
US$3 million in a few major currencies, such as
the US dollar and the euro.
The PBoC now
says it will further liberalize such rates by
simplifying the administration of rates it
continues to manage and allowing the rates on
certain types of deposits smaller than US$3
million to float freely. The bank said there is a
need for banks to enhance their ability to price
loans according to risk factors and costs so as to
prevent price undercutting.
March to
Shanghai
The PBoC may consider establishing
a "super branch" in Shanghai to bring it closer to
the marketplace. The move, reported in Monday's
edition of the Beijing Times newspaper, got its
first confirmation on January 20 from People's
Bank of China Shanghai branch head Hu Pingxi. Hu
was quoted as saying that the central bank aimed
to "consolidate its resources and improve its
operational efficiency" by setting up such a body
in Shanghai.
The Shanghai "super branch"
will assist the central bank's decision-making
processes by being in a position to obtain more
relevant market information. But the Beijing
headquarters of the central bank and its Shanghai
branch remained tightlipped about the report. A
leading official from the Shanghai Banking
Association said that although he had not yet seen
any official documents related to the decision, it
would significantly propel the city's drive toward
becoming an international financial center.
The official, who wished to remain
anonymous, added that the proposal to set up such
a branch in Shanghai was several months old. "It
is not proper to call it a headquarters because it
will actually be a subordinate with more
privileges than any other local branches of the
central bank," he said. According to him, it would
be on the lines of the Federal Reserve System in
the United States, with the Federal Reserve - the
central authority - based in Washington and the
Federal Reserve Bank of New York playing a leading
monetary role only subordinate to the central
authority. "It is also a necessity for the central
bank because the financial market in Shanghai is
more active and will allow the central authority
to make accurate and quicker decisions," he said.
Beijing will continue to take care of
monetary policy issues, while departments at the
market operation level, such as the credit
management bureau and the anti-money laundering
bureau, will be relocated to Shanghai, confirmed
the official. "It is a great support to the city
and Shanghai's financial leadership will be
further enhanced," said Han Hanjun, an economist
and director of the Research Office of Financial
Theories under the Shanghai Academy of Social
Sciences.
He revealed that insiders are
using the term "second headquarters" to refer to
the body to be set up in Shanghai and he learned
that a deputy head of the central bank would be
stationed in Shanghai to take charge of it. All
headquarters of the central bank and the "big
four" commercial banks are based in Beijing, which
hinders Shanghai's ability to obtain a solid
financial position in the country, let alone
globally, Han added.
By the end of 2004,
the total assets of banking institutions in
Shanghai reached 2.61 trillion yuan (US$315.6
billion), 8.3% of the country's total according to
data released by the Shanghai Banking Regulatory
Bureau. Assets of foreign banks in Shanghai
totaled 315.8 billion yuan, achieving a yearly
growth of 40.3% and accounting for 12.2% of the
city's total.
China Construction Bank
Corporation (CCB) is the latest addition to the
growing list of business entities seeking their
fortunes in Shanghai. It recently announced that
it set up its first fortune center in Shanghai on
the weekend to offer professional financing
service to high-ranking individual clients. The
move is taken as a new step for CCB to explore the
market in China after it was reformed into a
state-controlled share-holding bank in September
2004.
The CCB, the financially healthiest
bank of the country's Big Four that include the
Industrial and Commercial Bank of China, the
Agricultural Bank of China and the Bank of China,
is improving its service to explore the market in
the new year, said Zhang Enzhao, board chairman of
the CCB. Zhang has confirmed that the CCB is
bracing for a public listing later this year,
which makes the bank a pioneer in the Chinese
government's ambitious program to reform the
banking system.
(Asia
Pulse/XIC/Nikkei) |
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