The passage of three new codes on banking business will profoundly impact the future of the industry.

The new rules "the Law on the Supervision of the Banking Industry, amendments to the Law on the People's Bank of China and amendments to the Law on Commercial Banks "were passed late last month by the Standing Committee of the National People's Congress.

While they did not definitively endorse the mixed operation of the banks "which means the banks can buy trust, stocks, bonds and other non-banking financial businesses "a door was left open for adoption of the mixed mode in the future.

China has banned the mixed operation of banks for nearly a decade.

By 1993, Chinese banks had adopted the mixed mode. Commercial banks, for example, played a pivotal role in initiating the domestic stock market.

In the wake of the real estate and stock investment frenzy in 1992, a large sum of bank funds entered the stock market, which was deemed to have led to an entangled financial order.

The Law on Commercial Banks, the Insurance Law and the Securities Law that were drafted in the mid-1990s thus prescribed a clear-cut principle of separated operation.

This time, the amendments to the Law on Commercial Banks state commercial banks are still forbidden to engage in trust and securities businesses or invest in non-banking financial institutions or enterprises "except as stipulated by the State.''

This minute change indisputably implies restriction on mixed operation. It can be explained as a move that allows the State to revamp the operation mode of the banks when the time is ripe.

The change will have immeasurable impact on the industry.

The development of economy demands a mixed operation mode. The United States, Japan and most European countries have begun to allow their banks to engage in multiple businesses.

In 1999, the Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act, was passed by the US Congress, terminating US banks' separated operation history of nearly 70 years since the early 1930s financial crisis.

The policy restructure enabled US financial institutions to become universal banking operators and benefit individual customers, who can get multiple financial services "credit card, insurance, foreign exchange transaction, fund and bond transaction, and auto and housing credit "through one account.

The domestic banking sector also faces demands from the market.

In recent years, as China's financial reforms have pressed ahead, the domestic separated operation has been giving way to the mixed mode.

With the development of online financial networks, which facilitates information transmission, co-operation between different sections of the financial sector has increased. Although they are conducted within the framework of separated operation and supervision, some businesses have been de facto mixed operations.

For example, financial holding companies that conduct mixed businesses have emerged, such as the Shanghai International Group Co Ltd. Other incorporations, such as the Shanghai Industrial Investment (Holdings) Co Ltd, are stepping in that direction.

Under the current financial structure, banks have launched stock mortgage loans, bank securities, fund and insurance sales agencies, and insurance policy mortgage loan services.

It has been proved a mixed operation enables resources and markets to be shared by more enterprises to improve operational efficiency and satisfy consumers' demand for one-stop financial services.

Despite the trend, the strict restrictions on mixed banking operation in relevant Chinese laws have seen no changes until the passage of the three banking laws.

Although they have not stipulated a major relaxation, the new drafts will have great bearing on the development of the financial industry.

Their impact may become perceivable in the future revision of the Securities Law and the Insurance Law or even the draft of a new law specifically governing the mode of banking operation.

Note: the author is a well-known financial expert with the Chinese Academy of Social Science

(China Daily January 14, 2004)