By EO Editorial Board
Issue 627, July 8, 2013
Corporation, page 1
Translated by Laura Lin
Original article: [Chinese]
Over the past month, China's State Council, Central Bank and Banking Regulatory Commission have all encouraged restructuring and reforming the nation's financial institutions by allowing more room for private capital so that banks can take their own risks. Though the aspiration to establish private banks isn't new, the fact that a number of top Chinese institutions are promoting the idea suggests that it may soon actually happen.
In terms of regulations, there is nothing forbidding the formation of private banks within China's commercial financial system. That is to say that, technically, there is no obstacle to founding them. But they have failed to emerge because the regulatory requirements for funding and investment ratios are much too harsh. This is despite both government policymaking and propaganda supporting their creation.
In recent years, China's regulatory authority has been vigorously promoting rural banks, but financial capital from private investment shouldn't be limited to the rural market.
That only makes it more difficult to mobilize further private capital.
And there are also basic problems of perception that impede progress. Just the phrase "private bank" (民營銀行) arouses debate. Some believe that they are financial institutions that serve only private enterprises, whereas others think it refers to the corporate governance model used by the bank.
A Bank is a Bank
We believe that the definition of "private banks" is not important, and there is no need for the government or regulatory institutions to define the term. Banks initiated with private capital should not be regarded as somehow fundamentally different in function from other banks.
The division of banks should be according to the existing systems of sole proprietorship (獨資), cooperation (合作) or joint-stock (股份), and should compete under the same regulatory guidelines. The government should establish the basic regulatory framework and legal environment for the financial sector so that all banks can fairly compete, and the best ones can thrive. The so-called "private banks" shouldn't enjoy any special policy. What they need instead is a level playing field so that private investors are willing to participate enthusiastically and have total operational autonomy.
The future economic development of China depends on mobilizing more private financial resources and promoting the entire banking sector's efficiency. The vast majority of Chinese commercial banks are administratively heavy. High-ranking executives in Chinese banks are both managers of the banks and administrative officers, and it's difficult for such a system to nurture real career bankers.
A banker is someone who manages financial assets as a profession in pursuit of maximizing value. They can use their wisdom and creativity to promote financial innovation, and correspondingly they can also take the same risks as commercial banks. This surely would mean prosperity for the entire banking industry - and the birth of "banker" (銀行家) as a real career path.
China's financial industry has entered a critical stage of the internationalization of its currency (the RMB), the liberalisation of interest rates and a broader economic transformation. Allowing private capital to cultivate true local bankers is now imperative. Finance is the core power of a market economy, and it needs more diverse services provided by banks and professionals who can enhance the Chinese banking industry.
As Liu Mingkang (劉明康), former chairman of the China Banking Regulatory Commission says, "They have internal power and external edification so that they can change the old world and project entrepreneurial spirit."
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