China probably won't create an independent banking regulator, keeping supervision of lenders laden with 2 trillion yuan (US$240 billion) of bad loans under the central bank, said an official at a state research institute.
The People's Bank of China shouldn't relinquish oversight of banks, which retain a role in implementing monetary policy, said Xia Bin, head of financial research for the State Council's Development Research Center. In Japan, the UK and many other countries, the two roles are split.
"If there was a dispute with the head of a monetary policy making department, the central bank governor could coordinate directly between the two departments," Xia, a former central bank official, said in a telephone interview. "That's much easier than for the State Council to coordinate between two different government bodies."
Maintaining the central bank's role as regulator would be at odds with China's efforts to pare links between the government and state-owned banks, laden with the legacy of years of policy-directed lending to state-owned enterprises. A separate supervisor could make it easier for banks to resist pressure to lend from the central bank, which has been pumping cash into the economy to maintain growth.
"An independent regulator would just be looking at the banking system," said Wei Yen, a banking analyst at Moody's Investors Service in Hong Kong. The commission "wouldn't worry about societal issues" such as employment.
People's Bank officials declined to comment.
The 21st Century Business Herald this week reported the central bank should retain control over banks, citing Li Yang, a member of the central bank's monetary policy committee.
"It is not the best time to split the central bank because the government is in transition and a lot of departments face changes," said Li, a researcher at the Chinese academy of social sciences.
Hu Jintao (
"Looking at the experience of central banks in other countries, separating monetary policy and banking regulation isn't a trend of the times," Li said in the report. "In China's case, the implementation of monetary policy should be carried out through banking supervision." Still, some other nations have also separated banking regulation from monetary policy, on the grounds that specialist agencies are better at their jobs. In June 1998, oversight of UK banks was shifted from the Bank of England to the Financial Services Authority, which also supervises investment services.
China may be planning to model its new banking regulator along the lines of the State Administration of Foreign Exchange, which manages China's currency reserves, Xia said. Guo Shuqing, the head of SAFE, is a central bank vice governor and reports to People's Bank Governor Zhou Xiaochuan (周小川).
Proponents of an independent watchdog point to the success of similar agencies overseeing the securities and insurance industries, arguing China's lingering bad-debt problem warrants a commission that reports directly to China's Cabinet.
Policy-makers also debate how to fix Industrial & Commercial Bank of China, Bank of China and other top lenders, which have been ordered to slash bad loans by 2006, when the likes of HSBC Holdings Plc and Citigroup Inc will get almost unfettered industry access.
The government is considering a bailout of the lenders, after shifting 1.4 trillion yuan of bad loans to asset managers and injecting 270 billion yuan of new capital into banks in 1998 and 1999.
"I don't know of any bad-loan problem that has gotten easier to deal with over time," said Chris Murck, chairman of the American Chamber of Commerce in China and former China head for Chase Manhattan Bank, now J.P. Morgan Chase & Co. "The timetable needs to be moved up."
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