Wasting no time in give a full picture of the reform on China's four biggest state-owned commercial banks, Zhou Xiaochuan, Governor of People's Bank of China, China's central bank, went straight into the core of his topic at the Beijing International Financial Forum on May 19.

In a review of the reform on state-owned enterprises (SOEs), he found something similar between the process of reform on financial sector and that of SOEs, both focusing on corporate governance oriented by legal representatives and diversified stock holding structure.

However, he said, state-owned commercial banks have a lot to do in these areas as financial sector carries a direct bearing on social and economic safety and stability. Actually China's decision making level has defined state-owned commercial banks as "enterprises specialized in monetary operation", he recalled. That means these banks will go to public after joint-stock reforms. He has noticed there has been no administrational intervention since the lesson of Asian Financial Crisis was taught.

Compared with industrial businesses, financial enterprises face higher requirements and ask for more complicated methodology for risk control. Capital requirement is particularly important to financial businesses, Zhou added.

Zhou seems to pay much attention to the uniqueness of the Big Four on comparison with industrial SOEs. First, the government has been very prudent in reform of the Big Four as financial products are more complicated and involve more extensive fields of the public interests. According to China's arrangements on sequence of reforms, state-owned commercial banks have offered resources to reform on other sectors, especially reform on industrial enterprises.

Zhou also highlighted conditions for reform on the Big Four, both favorable ones and unfavorable ones. He attributed the pressure, motivation and progress of reform partly to lessons learned from the Financial Crisis hit Asia in 1997 and 1998.

He analyzed the reasons behind the massive bad loans built up in banks before 1990s': 30 percent resulting from government intervention, 30 percent from SOEs they supported, 10 percent from local administrative and legal environment, and 10 percent from industrial restructuring led by the state government.

But the remaining 20 percent, he pointed out, has been caused by the banks themselves which had some problems in internal management, including problems in system. Commercial banks carry more traits of bureaucracy than industrial enterprises do. Things have been improving when the external environment got better. For example, there is no administrative intervention now.

In a word, it is a more difficult long haul for commercial banks to dispose of their NPL and improve their management and mechanism.

The government has very strong determination in pushing forward the reform on state-owned commercial banks. Capital injection into two banks of the Big Four is one of the evidences. Zhou predicts initial joint-stock reform and initial establishment of corporate governance will be completed for the first half this year.

Zhou stressed the importance of having a perfect integration between the internal management system and external environment. In this sense, stock holding reform is under the spotlight. In this process, experience of SOEs reform will be drawn upon.

He also gave some idea about how China's financial sector should meet challenges in the post-WTO era. Talents competition, especially in credit area, will be very hot. Cooperation on fostering various professional institutions should also be strengthened. The hi-end market, he said, should be paid special attention to ensure high return on investment.

He expressed his confidence in the success of the reform on China' four biggest state-owned commercial banks and vowed to make great efforts to ensure the success.

By People's Daily Online