China Promotes Reform of Banking Industry

China will continue to pursue the objectives of its monetary policy so as to prevent both inflation and deflation, and to maintain the stability of Renminbi, Vice Governor of People's Bank of China Wu Xiaoling said in Beijing Tuesday.

She made the remark at the China Financial Industry Reform International Summit that opened in Beijing Tuesday.

Wu said that China's financial reform has several major objectives.

The country will shift the priority of the monetary policy to indirect control methods, such as open market operations, rediscounting and interest rate adjustment, she said.

China will also properly handle the balancing acts of defusing financial risks and maintaining stability of the Chinese currency, and preventing financial risks and promoting economic growth.

Wu pledged that it will adjust the strength of the monetary policy and improve its pre-emptive capacity in a timely fashion; it will establish an interest rate system driven by market forces and centered around the bench mark of the interest rate of the central bank; and it will coordinate fiscal and monetary policies.

To counter the challenges of international competition, China will further reform the system of state-owned commercial banks, improve the regulatory mechanism and accelerate the establishment of a modern banking system.

Wu said that the reform measure of capital fund supplement will include forming a regular supplement channel and improving the level of capital adequacy.

She said that the country will reform the reserve withdrawing system for loan losses and the system of writing off bad debts. The move is aimed to give commercial banks more incentives to put aside adequate reserve funds for loan losses and greater power to write off bad loans.

The country will also encourage innovations and vigorously develop intermediary financial services in a move to increase revenue sources and spread risks.

She noted that opening to the outside world is a basic policy of China. China's accession to the World Trade Organization (WTO) will accelerate the pace of opening of the country's financial industry, she stressed.

She pointed out that the process of opening the financial industry to foreign investors depends on the demands of China's economic development, progress of financial reform, development of the financial market and regulatory power of the financial sector. Whether or not China joins the WTO, the country will continue to open further to the outside world according to its own timetable.

By the end of 1999, 87 foreign financial institutions and group corporations from 22 countries and regions in the world had set up 182 operating entities in China. In addition, 166 foreign banks from 38 countries and regions have set up 248 representative offices in the country. Branches of foreign banks had US$31.8 billion -worth of assets in China, accounting for less than two percent of the total assets of financial institutions in the country.

Foreign banks had lent 21.8 billion US dollars in China, accounting for about one-fifth of the country's total foreign exchange loans.



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