The participation of foreign strategic investors in China's
ongoing banking reform will not threaten the nation's financial
security, a senior Chinese central banker said yesterday.
Wu Xiaoling, deputy governor of the People's Bank of China,
dismissed worries that the growing equity investment by foreign
banks may erode the security of the local financial system.
"Making the state-owned banks healthier on the precondition of
state control by ushering in strategic investors will not affect
financial security," she said at a seminar on Sino-US economic ties
yesterday.
"The important thing is we ensure the structural balance of the
national economy at a macroeconomic level, so as to make our
economic system more flexible and give the performance of the
economy greater adaptability," she said in the speech, published on
the bank's Web site. "If not, the performance of specific financial
institutions will be affected."
A number of foreign financial institutions such as HSBC and Bank
of America have invested more than US$20 billion in local banks in
the past few years, as local financial authorities seek foreign
expertise and capital to help reform the sector before it is fully
opened to foreign competition at the end of this year.
In the latest development, Goldman Sachs, Allianz and credit
card company American Express last month agreed to invest a
combined US$3.78 billion in the Industrial and Commercial Bank of
China, the nation's largest bank.
As foreign equity investment increased, particularly when the
biggest four state-owned lenders started to sell shares, worries
grew that foreign banks might seize control of the local banking
sector.
The worries have been repeatedly refuted by Chinese officials,
chiefly citing reasons like strict criteria in selecting strategic
investors and a 25 percent ceiling on foreign ownership of any
Chinese bank.
The fragility of China's banking sector, plagued by high bad
loan rates and low capital bases, is a major concern when the
authorities ponder changes such as exchange rate regime reform.
Chinese officials have been resisting foreign pressure to let
the yuan appreciate further after a major reform last July,
insisting further exchange rate reform should be based on the
nation's own circumstances and should not disturb stability.
"The opening-up of China's financial market provides investment
opportunities for global capital, enabling investors from different
countries to share benefits from the rapid growth of the Chinese
economy," Wu said.
"The reform and development of China's financial industry also
needs an international environment with relative forgiveness and
mutual understanding," she added, citing factors such as the
structural imbalance of the world economy and sharp fluctuations of
oil prices that are currently posing a severe challenge to the
Chinese financial industry.
The opening-up of the industry in the past few years has enabled
local financial institutions to improve management through
competing with foreign counterparts, while foreign financial
institutions have also witnessed strong growth in the process, Wu
said.
Chinese banks saw their profits grow to 253 billion yuan (US$31
billion) last year from 23.2 billion yuan (US$2.8 billion) in
2001.
Their non-performing loan ratio dropped to 9.8 percent last year
from 2001's 25.4 percent.
The profits of foreign financial institutions, meanwhile, rose
to US$446 million last year from US$196 million in 2001.
(China Daily February 15, 2006)