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2 China seeks new ways to spend $1
trillion By Zhou Jiangong
bonds, China Business News, a
leading business newspaper based in Shanghai,
reported.
The conference also indicated
that China's economic development and reform will
focus on the financial industry in the near
future. The government has realized that sustained
growth will largely depend on the modernization
and opening up of the country's financial markets.
Wen said that China's financial sector is
at a "turning point" and
that
reform of the sector is entering a new era. With
the end on December 11 of the five-year
transitional period for its entry to the World
Trade Organization (WTO), China has fully opened
its banking sector to foreign investors and
further relaxed its restrictions on overseas
investment in the insurance and securities
industries.
Although the factor is not
mentioned in official statements, the major banks
have been required to "deepen" reform to cope with
new challenges created by the opening up of the
sector, to strengthen the competitiveness of the
country's financial institutions in the face of
increasingly aggressive competition from their
foreign rivals.
Zhou Xiaochuan, the
governor of PBoC, said the successful listing of
three of the big four state lenders, ICBC, BOC and
CCB, is "preliminary" and the next stage of
financial reforms will be "complicated, hard, and
time-consuming".
The State Council has
decided to restructure the Agricultural Bank of
China (ABC), the last of the big four lenders,
into a joint-stock enterprise and "seek
opportunity for public listing". For this purpose,
the government will have to inject huge amounts of
capital into ABC to boost is capital adequacy and
lower its non-performing-loan ratio.
The
State Council also decided to restructure the
China Development Bank (CDB), the country's policy
bank. It is also widely expected that CDB will be
injected with billions of dollars in order to
enable it to finance China's "going out" strategy.
The messages from the conference sent a
strong signal to the stock market in Shanghai and
Shenzhen: the government is determined to broaden
and deepen capital market reforms in coming years.
The Shanghai A-share index shot up to 3,070 at
2:30pm on Monday, up 96 points or 3.21% from last
Friday.
It appears that the conference has
served as a venue for handling important policy
changes.
The first such conference was
held shortly after the Asian financial crisis in
1997. It was during that meeting that Chinese
leaders made the decision not to devalue the yuan
despite the sharp decline of nearly all other
Asian currencies. It was also during that meeting
that the decision was made for the Ministry of
Finance to bail out the technically insolvent big
four lenders by injecting billions of yuan and
stripping off hundreds of billions of yuan in bad
debts.
The second Central Conference on
Financial Affairs was held in 2002, after China
joined the WTO, with a focus on how to strengthen
supervision on commercial banks and how to prevent
a financial crisis from sweeping the country. The
2002 meeting decided to kick off a restructuring
of ICBC, BOC and CCB, with an aim to turn them
into joint-stock enterprises for public listing.
For this purpose, the Chinese government once
again had to inject funds, $60 billion in total,
into the three lenders. The CCB is now listed in
Hong Kong while the other two sell stocks in both
the Hong Kong and Shanghai bourses. After the
conference's decision, the China Banking
Regulatory Commission (CBRC) was set up to enhance
the supervision of commercial banks.
China's pledge to deepen financial reform
at the third financial conference has been
welcomed by overseas financial institutions
registered in the country. "The conference, which
was held at the end of the grace period for
China's WTO accession, was of great significance
for the nation to constitute an open, competitive
financial regime," David Dollar, director of the
World Bank office in Beijing, told Xinhua.
Tang Min, chief economist with the Asia
Development Bank Mission in China, said: "The
strategies and principles set out at the
conference will further crystallize the future
orientation of China's financial reform. The
financial sector, as an economic engine, should
also make a readjustment as China continues its
shift from solely stressing economic growth to
building a harmonious society."
Zhou
Jiangong is a Shanghai-based analyst on
China's political, economic affairs and
international relations.
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