In the years since China entered the World Trade Organization in December 2001, the Chinese banking industry has undergone tremendous change-opening up has been stepped up, the financial market reshuffled, bank reforms initiated, various new financial products introduced and financial policy and regulations redefined.
Last October, the China Construction Bank (CCB), the country’s largest property lender, was listed on the Stock Exchange of Hong Kong. The bank raised $8 billion from its initial public offering, the world’s biggest flotation in four years. Stock analysts believe China Construction Bank’s IPO was a litmus test for the other three big state-owned Chinese banks waiting to list overseas.
Since the 1980s, restructuring of the “Big Four”-Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China-has been the focus of China’s banking reforms. It became an urgent need when the 1997 Asian financial crisis erupted. There was a consensus that the reform of state-owned banks is closely related to the development of the domestic banking industry as well as to sustainable economic development. In recent years, since direct financing in China is still arduous due to an underdeveloped securities market, improving the effectiveness of domestic banks, a major source of capital supply, has become even more pressing.
However, reform of Chinese banks has posed a major challenge for decision-makers. In the recent past, the emphasis of reforms has been the reduction of non-performing loans. But unless the mechanism of producing non-performing loans is eliminated, the whole effort will be in vain. Top decision-makers have finally realized the importance of enhancing the performance of the Big Four. Grasping this golden opportunity, these banks have sought out the support of the government, which has injected billions of dollars to improve their financial standing. Among them is CCB and it should be noted that its performance improved significantly in the past two years after the Central Huijin Investment Co. injected large amounts of capital to strengthen its capital base.
The listing of CCB in Hong Kong means that the state monopoly of China’s big banking institutions has been broken. The former state-owned bank is now a public company. The reason for the lack of a modern corporate governance system in old-time state-owned banks lies in unclear property rights under state ownership. This has led to random administrative intervention in the operations of the banks, many of which are cashiers of local governments-resulting in a large amount of non-performing loans and bad debts. In such circumstances, bank executives do not have to worry about the bank’s performance and even if problems do arise, they can pass the buck to the government.
|