Experts divided over macro control measures
By Xu Dashan (China Daily)
Updated: 2004-08-09 08:36

Chinese economists are divided over the government's macro control measures steering the country's ongoing banking reforms.

Some economists claim the measures will have a negative impact, but others say the policies will act as a stimulus.

Zhu Jianfang, an economist with China Securities, argues the macro environment for the banking reform has gone bad because of the decrees.

Banks' loan businesses have shrank, following the deployment of the raft of measures including the issuing of tighter restrictions on new projects in "over-invested" industries like property and steel, and ordering banks to keep more money in reserve instead of lending it out, says Zhu.

Figures released at the end of June suggest new loans issued by the China Construction Bank, one of the country's "big four" commercial banks, rose 6.78 per cent from the beginning of the year to 141.7 billion yuan (US$17.1 billion).

The growth rate was down by over 50 per cent on the previous year's 16.8 per cent.

New loans issued by the Industrial and Commercial Bank of China, the country's largest bank, stood at 176.5 billion yuan (US$21.3 billion) at the end of June.

But the bank did not give a comparative figure.

The decrease in the loan business would reduce the future expansion capacity of the banks, Zhu says.

Researcher Huang Jinlao from the International Financial Research Institute at the Bank of China says many projects, which were previously funded by bank loans, could not obtain further loan support and were unable to finish their constructions.

"This would increase the banks' risks and their non-performing loans," he says.

Tang Min, chief economist with the Asian Development Bank's resident mission in China, also agreed that the macro-control measures would have a certain negative impact on banking reforms.

But he also claims the measures would have some positive sides.

"The macro control measures will promote the banking reform to some extent, because they require the banks to be prudent to issue loans and to beef up supervision," he says.

The measures would also force the banks to do more to improve their corporate governance.

Niu Li, an economist with the State Information Centre, said from the long-term point of view, the macro control measures were beneficial for minimizing the banks' risks.

Their implementation stemmed from a government worrying that some overheated sectors such as steel and cement would spark widespread economic overheating. The government believed this scenario would bring in more non-performing loans for the banks in the future, says Niu.

"The measures, although they might lead to a certain amount of non-performing loans in the near term, would be helpful for solving the issue of future risks," he argues.

The country's banking reforms would not be affected by those measures, he asserts.

Following the split of China Construction Bank into a company group and a shareholding company in June, other major commercial banks are also expected to make big steps in their comprehensive reforms, according to an earlier report.

The China Banking Regulatory Commission has already mapped out a timetable for the commercial banks' reform, the report says.

Relative regulators would finish studying the reform scheme by the Industrial and Commercial Bank of China before the end of this year.

The bank is trying to complete its shareholding reforms by next year.

The Bank of China said it would turn itself into a shareholding company before the end of 2004.

The shareholding reform scheme by the Bank of Communications, the country's fifth largest bank, had been already submitted to the State Council.

The bank's financial restructuring would be completed before the end of this year, it says.

Chinese commercial banks would have to sharpen their competitive edge before the end of 2006, when foreign banks will have unfettered market access under China's World Trade Organization commitments, says Niu .

The commercial banks will have to lower the rate of non-performing loans, get rid of historical financial burdens and raise their capital adequacy to international standards, he claims.