China nudges banking reforms before WTO Bill Savadove
Beijing, Jan 20: China's central bank governor Dai Xianglong said on Thursday China would reform its creaky banking sector this year as it braced for foreign competition once Beijing became a member of the World Trade Organisation. China would seek to boost the Financial clout of banks andcut their bad loans, while allowing more competition by relaxing some controls over interest rates, he told a news conference. "WTO provides opportunities and challeges for the Chinese banking sector," he said. "The challenges are that we will be confronted with fiercer competition for personnel and customers." "This will put great pressure on Chinese banks." China expects to become a WTO member by mid-year afterstriking landmark deal with the United States in November. It holds similar talks with the European Union next week. The US deal will eventually allow foreign banks tocompete with local banks on an equal footing after China joins the WTO. "China's entry into WTO will put pressure on the central bank and the state commercial banks to accelerate reform," said Joe Lo, senior economist at Citibank in Hong Kong. "Credit Discipline" urged: But reforms will still take time. China's state banks must first clear bad loans and slash bloated payrolls, while exercising strict "credit discipline" to prevent loans to ailing companies, Dai said. State banks were not ready to become strong, shareholding companies, he said. "After undergoing the reforms, state banks are expected to be able to compete with big international banks," Dai said. "This restructuring requires many conditions and the conditions are not mature at this stage."The ratio of bad or doubtful loans at China's big four state commercial banks was eight or nine per cent, he said. That figure is far below estimates of 25 per cent given by many foreign economists. Dai gave his stamp of approval to the use ofdebt-for-equity swaps to reduce bad loans despite questions by economists and in the official media about their effectiveness so far. Copyright © 2000 Indian Express Newspapers (Bombay) Ltd. All rights reserved throughout the world. feedback at financialexpress.com