Caixin
Jul 18, 2013 07:26 PM

Expanding Territory for Financial Reform

The Chinese government's latest interest rate liberalization efforts are intertwined with parallel banking initiatives taking shape in Beijing.

Caixin has learned, for example, that the central bank has finished a draft plan for what would be the nation's first bank deposit insurance system.

The draft has been submitted to the legal office operating under the State Council, the cabinet, which has the power to approve or reject the plan. What's not known is whether the plan might be publicly unveiled before the end of the year.

Still under debate are key deposit insurance proposal issues such as whether it should be regulated by the central bank or the China Banking Regulatory Commission, and how to structure bank insurance payments.

Lian Ping, chief economist at the Bank of Communications, said the traditional, de-facto insurance system that the state offers big banks is no longer relevant since increasing numbers of foreign and private players are getting involved in China's banking industry.

Bank liberalization advocates are also discussing a possible way out of the market for banks by declaring bankruptcy. A draft of a proposed bankruptcy regulation was on a State Council legislative agenda in 2011, said a CBRC source, but since then has not moved past the "inviting opinions" stage of the discussion.

Bankers would be playing on an uneven field if the government continues bailing out troubled, state-owned banks, which puts private competitors at a disadvantage, said Lian.

Interest rate liberalization is also linked to how much market space the government wants to offer private players in the banking sector. Without adjustments, state-owned banks will continue to favor government-backed enterprises that enjoy borrowing costs far below those paid by smaller, private companies.
The Chinese government's latest interest rate liberalization efforts are intertwined with parallel banking initiatives taking shape in Beijing.

Caixin has learned, for example, that the central bank has finished a draft plan for what would be the nation's first bank deposit insurance system.

The draft has been submitted to the legal office operating under the State Council, the cabinet, which has the power to approve or reject the plan. What's not known is whether the plan might be publicly unveiled before the end of the year.

Still under debate are key deposit insurance proposal issues such as whether it should be regulated by the central bank or the China Banking Regulatory Commission, and how to structure bank insurance payments.

Lian Ping, chief economist at the Bank of Communications, said the traditional, de-facto insurance system that the state offers big banks is no longer relevant since increasing numbers of foreign and private players are getting involved in China's banking industry.

Bank liberalization advocates are also discussing a possible way out of the market for banks by declaring bankruptcy. A draft of a proposed bankruptcy regulation was on a State Council legislative agenda in 2011, said a CBRC source, but since then has not moved past the "inviting opinions" stage of the discussion.

Bankers would be playing on an uneven field if the government continues bailing out troubled, state-owned banks, which puts private competitors at a disadvantage, said Lian.

Interest rate liberalization is also linked to how much market space the government wants to offer private players in the banking sector. Without adjustments, state-owned banks will continue to favor government-backed enterprises that enjoy borrowing costs far below those paid by smaller, private companies.

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