China's new banking czar Liu Mingkang is faced with one of the most daunting tasks imaginable, but his mandate is uncertain.
Liu, who was made head of the China Banking Regulatory Commission this week, has been charged with saving the banking sector, and by extension the entire Chinese economy.
"Nearly every China `nightmare' scenario begins with a banking crisis," said Jonathan Anderson, chief China economist for Goldman Sachs.
One major problem is the People's Bank of China (PBOC), the central bank, appears to be dragging its feet when it comes to handing the bank supervision role over to the new regulatory body headed by Liu.
The body has reportedly met considerable resistance at the PBOC, which has seen its once immense powers over the financial sector gradually reduced and is now in charge of just monetary policy.
As late as this week, the PBOC said the question of how to share responsibilities with the new banking commission "needed further study".
"It is not necessary to draw a line too early since we have no experience in the new field," PBOC governor Zhou Xiaochuan said, according to the
"What we should emphasize is the cooperation between the two sides," he said.
If Liu, formerly the head of one of the four big state banks the Bank of China, gets his job description sorted out, he will have his work cut out for the five years he is expected to head the commission.
According to local statistics, the four large state-owned commercial banks have average non-performing loan ratios of 25 percent, while independent analysts put the true figure closer to 40 percent.
The markets expect some kind of bail-out costing the government up to US$500 billion, or the equivalent of India's GDP.
The government has already provided similar help in the past, but with little impact in terms of making the banking sector healthier.
It injected 270 billion yuan (US$33 billion) into the banks in 1998, followed the year after by a transfer of 1.4 trillion yuan of bad debt off their books.
Nevertheless, analysts said, something needs to be done, as the banks brace for growing foreign competition in the wake of China's entry into the WTO -- and now is the time to do it.
"With the economy growing quite strongly, it's easier to sort out the problem now," Terry Chan, Standard and Poor's director of financial services ratings told financial news service AFX Asia. "In any slowdown, it will become much more difficult to manage."
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