China using US$45b to overhaul BOC, CCB ( 2004-01-06 10:31) (Agencies)
China announced a US$45 billion plan Tuesday to shore up the finances of two
major state-owned banks as part of an effort to turn them into free-standing
corporations.
The announcement in state media came amid a drive to modernize China's state
banks in preparation for allowing foreign competitors into the industry. Chinese
banks are trying to clear away mountains of unpaid debts accumulated by failing
state companies.
The two banks picked for the project are Bank of China (BOC) and China
Construction Bank (CCB), two of the China's four biggest state-owned commercial
banks. They said the money to finance the plan would come from China's foreign
reserves, which total nearly $400 billion.
The banks are to be turned into corporations with shareholders and boards of
directors, the official reports said. They said "foreign strategic investors"
would be invited in, but gave no indication that private investors might be
allowed to buy control of the institutions.
Government has said it plans to keep control of major companies in finance
and other "strategic industries," even as they are turned into market-oriented
corporations.
Economists said reform steps such as those announced Tuesday were inevitable
for Chinese banks as the government tries to turn them into competitive,
profitable entities. The banks have also been making efforts of their own to
clear away bad debts and adopt market-oriented lending practices.
"The reform aims to turn the two selected banks into commercial banks in the
real sense," the Xinhua News Agency said. "After the reform, the two banks would
become modern banking companies, featuring sufficient capital, strict internal
control, safe operations, good service and good economic returns."
China's state banks until recently were treated as a source of money to prop
up failing government companies. That left many with too little capital to meet
regulatory requirements, forcing the government to inject more money to keep
them solvent.
The banks will be required to reorganize financially, speed up disposal of
bad assets and increase their capital reserves, according to Xinhua and major
newspapers.
A spokesman for China's foreign exchange regulator was cited by Xinhua as
saying the injection of money into Bank of China and Construction Bank was a
"kind of capital investment," not a subsidy.
Xinhua also warned that bank officials might be punished for allowing
nonperforming loans to pile up, "as will those who have tried to evade repayment
of loans by fraudulent means."
