China is planning to hire foreign executives for its big state banks and invite in foreign investment in a sweeping overhaul of an industry struggling with chronic bad debts, the Financial Times reported yesterday.
Liu Mingkang (劉明康), chairman of the China Banking Regulatory Commission, said in an interview that the commission wants to turn around China's biggest banks -- several of which are technically insolvent -- within three to five years, the London-based newspaper said.
China set up the banking commission in March as a Cabinet-level watchdog for an industry struggling to adapt to market demands after decades of functioning as cash suppliers to inefficient state industries.
Beijing is under pressure to clean up its banks as it prepares to open the market to foreign competitors under commitments made to the WTO.
Last week, the commission gathered top international finance experts to solicit advice on its blueprint for banking reform. They included a former governor of the Bank of England, a former head of the New York Federal Reserve and a former general manager of the Bank of International Settlements.
Liu was quoted by the Financial Times as saying he would like to see foreign executives hired for key positions in state banks -- an unprecedented move.
Beijing also plans to inject capital into the big state banks and then have them sell shares on foreign stock markets, the newspaper quoted Vice Minister of Finance Lou Jiwei (
Official statistics put the amount of non-performing loans in the "big four" state banks -- China Construction Bank, Bank of China, Industrial & Commercial Bank of China and the Agricultural Bank of China -- at about 2 trillion yuan (US$250 billion), or about 23 percent of total assets. Some foreign experts put the figure at about twice that amount.
Liu said the main priority was to ensure that banks do not backslide once they have cut back on bad loans. He noted that a major challenge in regulating the banks was their vast size and vertical structure, which enables branch managers to hide irregular activities from their bosses in head offices.
"You can see a lot of time bombs binding together to become an atom bomb," he was quoted as saying.
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