China has publicized plans to build Tianjin into a financial center in the north by introducing a range of reforms in the city's Binhai New Area.

Tianjin Mayor Dai Xianglong said that experiments will be made in reforming the scope of the banking business, ways of fund-raising and control of foreign exchange.

Measures will be part of the economic and administrative reform efforts to cultivate the Binhai New Area into a new engine of growth.

Earlier this month, the Binhai New Area, with an area of 2,270 square kilometers, was announced by the State Council as an experimental zone for comprehensive reforms.

It will be built into the third economic powerhouse in the country after Shenzhen in south China's Guangdong Province and the Pudong New Area in Shanghai.

While addressing a recent Sino-American seminar on finance held in Tianjin, Mayor Dai said as a way to reform the scope of banking businesses, a financial share-holding company with limited liabilities would be set up in the Binhai New Area to experiment with operating diverse financial businesses.

Under China's measures to rein in a growing number of bad loans, all banks are disconnected from trust and investment companies, and banking, securities and insurance businesses are operated independently.

"There is a bottleneck for operating banking, securities and insurance businesses independently," said Dai, who used to be governor of the People's Bank of China, the country's central bank.

Limited by the industry regulations, Chinese banks can not provide the diverse financial services desired by a growing number of conglomerates, whose business covers many fields.

However, foreign banks in China, with the support of their parent banking groups based overseas, are offering multiple financial services, which certainly puts Chinese banks at an disadvantageous situation, Dai said.

In the meantime, industry investment funds and fund management companies will also be set up at the Binhai New Area to pool funds directly from the domestic and international financial markets.

One of the problems that have been plaguing China's financial system is that pooling funds directly from the open markets accounts for a small proportion of the entire fund-raising in the country.

Currently, the proportion of direct fund-raising only stands at four percent, compared to nine percent in 1994.

With money raised indirectly, enterprises will suffer due to a high ratio of liabilities, heavy financial burdens, low innovation capabilities and weak capabilities to hedge risks, according to Dai.

Dai cited the United States as an example. By late 2002, the proportion of funds raised directly made up 80 percent in the United States.

Dai disclosed that the Bohai industry investment fund, with the participation of six companies and a limit of 6 billion yuan for the first phase, as well as a new special fund management firm with 100 million yuan in capital, would soon be launched.

Measures will also be introduced to reform the foreign exchange management system at the Binhai New Area, according to Dai.

Enterprises will be allowed to settle exchange freely at the Binhai New Area. The current common practice toward the control of foreign exchange in most parts of the country is that enterprises should sell all the hard currencies to banks only as required after having paid off obligations arising from foreign trade.

Also inside the Binhai New Area, China's currency, the RMB yuan will be convertible within a set limit and designated districts.

The plan, which still needs improvement, will be executed after the central government gives it the go ahead, according to the mayor.

The development of the Binhai New Area has been written into the 11th Five-Year Program (2006-2010) for national economic and social development in March this year.

The gross domestic product of the Binhai New Area stood at 160.8 billion yuan (about 20.1 billion U.S. dollars) in 2005 and is expected to reach 1,000 billion yuan (about 125 billion U.S. dollars) in 2020.

Source: Xinhua