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Wed, Mar 30, 2005 - Page 12 News List

China's new rules aim to curb corruption

BANKING SECTOR Some of the new regulations include making senior managers legally responsible for fraud cases and offering rewards for uncovering wrongdoing

NY TIMES NEWS SERVICE , BEIJING

Seeking to halt a recent increase in bank corruption, China published rules on Monday offering generous rewards to bank employees who expose corruption.

Bank managers will also be regularly rotated to different posts and monitored for involvement in pornography, gambling and drugs under the rules, which were issued by the China Banking Regulatory Commission. Other steps announced included making senior managers "legally responsible" for major fraud cases; establishing a system of reporting on the stock investments of managers and top personnel; and establishing new checks on loan approvals.

"There's been a succession of major cases due to weaknesses in risk management and internal controls, and this had led to major capital losses from banks," a commission official told Xinhua, the official news agency, in a statement that appeared in the Chinese press on Monday. Xinhua did not identify the official.

The rules appear to be an effort to bolster confidence in China's state-owned banks after a string of scandals tarnished plans to issue stock. Late last year, the Bank of China disclosed that employees in one branch in Beijing alone had stolen 30 million yuan (US$3.6 million); last month, the China Construction Bank revealed that employees in northeastern China had embezzled 33 million yuan; and a few days ago, the Agricultural Bank of China said that 43 employees in Baotou, also in the northeast, were under investigation after the disappearance of 115 million yuan.

On Sunday, the Bank of China announced that an employee in the northeastern city of Dalian had been arrested after embezzling 50 million yuan to gamble on soccer matches. Last week, it was disclosed that Zhang Enzhao (張恩照), who resigned this month as president of the China Construction Bank, was being sued in a US court over allegations that he took bribes from an American contractor.

"The cases show the auditors are getting serious and going through the banks' books," said Stephen Green, a senior economist with Standard Chartered Bank in Shanghai. "But you'd have to be a fool to believe that Chinese banks are already out of the woods."

The government is pressing banks to prepare for the arrival of international banks in 2007, when WTO rules require China to lift many restrictions on the entry of foreign banks.

Tang Shuangning (唐雙寧), deputy director of the China Bank Regulatory Commission, warned that China's banks must accelerate reforms to prepare for greater competition. Calling the banks' entry into the stock market a "double-edged sword," he said state-owned banks had to improve internal management and controls to survive in the new environment.

Tang warned that the Agricultural Bank of China and the Industrial and Commercial Bank of China faced special difficulties as they prepared to issue equity. A successful revamping of Agricultural Bank depends on reform of China's troubled rural finance sector, and renewal at the Industrial and Commercial Bank depends on reforming state-owned businesses, he said.

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