Chinese Premier Wen Jiabao (溫家寶), China’s top economic official, says the nation’s state-owned banks are monopolies that must be broken up, acknowledging mounting economic and political pressure to reform an industry whose vast profits are fueling public anger.
Wen’s comments on Tuesday suggest Beijing sees a growing political danger from its failure to carry out long-promised reforms of state banks, which pay minimal interest on deposits and made tens of billions of dollars in profit last year. Public resentment has risen as China’s rapid economic growth slows and fears of job losses rise.
Speaking on Tuesday to businesspeople, Wen said Beijing has launched reforms aimed at serving entrepreneurs better by opening up banking to private investors, China National Radio reported. It gave no indication of a possible time line for further reforms.
“Our banks make money too easily. Why? Because a small number of big banks have monopoly status,” Wen said, according to a transcript on the radio station’s Web site. “To allow private capital to flow into finance, basically we need to break the monopoly.”
Wen spoke during a visit to Fujian Province, a center for -export-driven private enterprise.
The Chinese government announced last week that it would launch a pilot project to expand private lending in Wenzhou in neighboring Zhejiang Province after a wave of defaults on underground lending that supported businesses there.
“I think those elements in Wenzhou that succeed need to be expanded nationwide and can immediately be introduced nationwide,” Wen said, according to the transcript.
Communist leaders have long used Chinese banks to subsidize state industry, shifting wealth from savers to politically favored companies. Entrepreneurs produce most of China’s new jobs and wealth, but get only a small percentage of bank loans.
That has fueled resentment, especially as the “big four” major state-owned commercial banks, which account for about half of deposits, report record profits.
China’s biggest lender, Industrial & Commercial Bank of China Ltd (中國工商銀行), earned US$33.1 billion last year, ranking it among the world’s most profitable companies. Other major banks — Bank of China Ltd (中國銀行), China Construction Bank Corp (中國建設銀行) and Agriculture Bank of China Ltd (中國農業銀行) — reported similar windfalls.
The government sets deposit and minimum lending rates, giving banks a guaranteed margin of about 3.5 percent. It has begun allowing lenders to charge more for some commercial loans, which has increased profit margins still further.
The World Bank and the Chinese government’s own researchers have added to calls for reform, warning economic growth could slow sharply unless banks become more efficient and lend more to support the dynamic private sector.
The government has repeatedly promised over the past decade to make banks more market-oriented and to pay higher deposit rates, but it has yet to make major changes. Analysts expect little progress for at least another year until a once-a-decade transfer of power to a younger generation of leaders is complete early next year.