The Chinese government has made "a major move" to allocate US$45 billion of its foreign exchange reserve for a bold banking reform, a spokesman of the nation's forex regulator said Tuesday.

The reform is aimed at turning the Bank of China and China Construction Bank, two of the "big four" state-owned commercial banks, into banks in the real sense.

The reform and the use of national forex reserve for the endeavor constitute "a major move to help the country prevent and mitigate financial risks and upgrade its financial system," said the spokesman of the State Administration of Foreign Exchange (SAFE).

The money had been injected into the two banks by Dec. 31, 2003,to increase their capital in cash, which is part of the efforts to turn them into joint-stock banks.

The move was in line with the functions and basic targets of the use of foreign exchange reserve, he said, adding that there is no lack of precedents in the world that central bank reserves were mobilized to mitigate financial risks.

At present, China has a strong ability of foreign payments, but its financial system is not that strong and healthy, he noted.

The reform and development of state-owned banks, a major component of China's financial system, plays an important part in the overall performance of the national economy, decides on the safety of the national economy, and touches the interests of every people.

China's banking reform has achieved great achievements, but their rational mechanism and high non-performing loan ratio of the state-owned banks are still major factors that affect the stability of the country's financial system.

The spokesman said that increasing the capital of the two banks is only one of the "external conditions" necessary for the reform of state-owned banks.

"If the inner reform (of the two banks) cannot be carried out, the capital injection move would be meaningless," he said.
 
(Xinhua News Agency January 6, 2004)