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Last updated at: (Beijing Time) Monday, November 24, 2003
China near to agreeing state bank bail-outs
China is poised to agree a multi-billion dollar plan to recapitalise its insolvent big state banks through injections of government capital, a senior official told the Financial Times.
Lou Jiwei, the vice-finance minister, said in an interview that the decision to bail out the country's main banks was taken at a key Communist party meeting in October.
The details of a comprehensive package to push ahead with China's most crucial economic reform are being worked out between the finance ministry and the People's Bank of China, the central bank.
Mr Lou said: "We have to adopt different modalities and different ways to inject new resources into the banks." "We have many main banks, so I am afraid [recapitalisation] will go on for many years."
Mr Lou did not give an estimate of the cost of the planned bail-out. Official statistics put non-performing loans in the "big four" state banks as 23 per cent of total assets, some Rmb2,000 bn ($240 bn), but independent economists put the figure higher, at 40 per cent or about Rmb3,500 bn.
Such figures indicate that all the big four - Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank - are technically insolvent. In addition, the frailty of the main banks is cited as a key barrier to important financial reform such as swifter liberalisation of domestic interest rates and the relaxation of capital and currency controls.
The government of Wen Jiabao, the premier who began a five-year term in March, has signalled a new resolve to reform and recapitalise the big banks, persuade foreign investors to take strategic stakes and, finally, prepare them for listing either domestically or in Hong Kong.
But both Mr Lou and Wu Xiao-ling, PBoC vice-governor, said the main emphasis of the recapitalisation plan would be corporate governance. Ms Wu said approval for recapitalisation of any bank would depend on its progress toward better governance.
Mr Lou said: "The main problem here is not about the recapitalisation of the banks but about institutional reform. If there is no institutional reform, the money [injected] would just be wasted."
With total government revenues at just Rmb 1,649bn last year, the burden of recapitalisation is heavy.
Mr Lou said Beijing was considering several ways to raise funds, including the PBoC "printing money", the state issuing debt and the PBoC using a portion of China's $400bn in foreign currency reserves.
The leading candidates for a capital injection are China Construction Bank and Bank of China, both of whom hope to list in Hong Kong in 2004 or 2005. But some analysts said such timetables may be too optimistic.
The planned bail-out follows a Rmb270bn capital injection in 1997 into the big four banks and a Rmb1,400bn transfer of non-performing loans off bank balance sheets into four asset management companies. But these have worked slowly to sell off their bad debts and are unlikely to receive another big transfer soon, officials said.
(Source: agency)
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