China to turn two state banks into joint-stock corporations
BEIJING (AP) - China announced a US$45 billion plan Tuesday to shore up the finances of two major state-owned banks as part of efforts to turn them into free-standing corporations.
The announcement in state media came amid efforts to modernise China's state banks in preparation for allowing foreign competitors into the industry. Chinese banks are trying to clear away mountains of unpaid debts accumulated by failing state companies.
The two banks picked for the project are Bank of China and China Construction Bank, two of the China's four biggest state-owned commercial banks, the reports said. They said the money to finance the plan would come from China's foreign reserves, which total nearly US$400 billion.
The banks are to be turned into corporations with shareholders and boards of directors, the reports said. They said "foreign strategic investors'' would be invited in, but gave no indication that private investors might be allowed to buy control of the institutions.
The communist government has said it plans to keep control of major companies in finance and other "strategic industries,'' even as they are turned into market-oriented corporations.
"The reform aims to turn the two selected banks into commercial banks in the real sense,'' the Xinhua News Agency said. "After the reform, the two banks would become modern banking companies, featuring sufficient capital, strict internal control, safe operations, good service and good economic returns.''
China's state banks until recently were treated as a source of money to prop up failing government companies. That left many with too little capital to meet regulatory requirements, forcing the government to inject more money to keep them solvent.
The banks will be required to reorganize financially, speed up disposal of bad assets and increase their capital reserves, according to Xinhua and major newspapers.
A spokesman for China's foreign exchange regulator was cited by Xinhua as saying the injection of money into Bank of China and Construction Bank was a "kind of capital investment,'' not a subsidy.
Xinhua also warned that bank officials might be punished for allowing nonperforming loans to pile up, "as will those who have tried to evade repayment of loans by fraudulent means.'' - AP
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