China's leading legislators are scrutinizing a draft law on banking supervision and management aimed at avoiding turmoil in the increasingly open financial industry.

"Our supervision will shift from the simple regulation compliance check to dual emphasis on regulation compliance and risk supervision,'' said Liu Mingkang, chairman of the China Banking Regulatory Commission.

On Friday, Liu outlined the draft legislation, which was devised by the State Council, to the Standing Committee of the 10th National People's Congress (NPC), China's top legislature.

The commission was established in March to replace the People's Bank of China as the country's sole banking regulatory body, in charge of industry regulation and framing rules.

The lawmakers will also review amendments to the Central Bank Law and the Commercial Bank Law to establish legal ground for the commission to better perform its supervisory task.

The function of fixing monetary policy and conducting macro management of the central bank will be enhanced through the law revision, said Zhou Xiaochuan, governor of the central bank.

The fact that weaknesses in banking systems have been the cause of several financial crises around the world over the past decade underlined the need to strengthen banking supervision in China.

Liu said the draft law has used the Core Principles for Effective Banking Supervision as reference to enhance its supervision capability.

The Core Principles were issued by the Basel Committee on Banking Supervision in September, 1997 and endorsed by the international financial community during the annual meeting of the International Monetary Fund and the World Bank in Hong Kong in October, 1997.

It has become the most important global standard for prudential regulation and supervision in the banking industry.

"Supervision of banks has become more challenging for Chinese supervisors after the country entered the World Trade Organization and this draft legislation, along with introduction of international practice, will help a lot,'' said Zhu Shaoping, a division chief of the NPC Financial and Economic Committee.

The lawmakers will also examine a draft law on administrative licensing.

The draft legislation is widely viewed as a major tool to protect the legitimate rights and interests of citizens and corporations, safeguard public interests and supervise administrative management.

It is expected to be voted on Wednesday.

(China Daily August 23, 2003)