PBOC seeks wider role for private sector

As internet technology changes the industry landscape, Beijing says it will allow tie-ups like the one between Alibaba and Minsheng Bank

PUBLISHED : Tuesday, 17 September, 2013, 12:00am
UPDATED : Tuesday, 17 September, 2013, 3:36am

Central bank governor Zhou Xiaochuan is calling for more private-sector financing to help smooth the mainland's credit supply-and-demand curve.

To "moderately" widen market access to the banking sector, Beijing would support the establishment of private banks, boost the development of micro-credit companies and encourage internet and mobile-phone banking, the People's Bank of China chief said in an article in the Communist Party's Seeking Truth magazine yesterday.

China Minsheng Banking signed a strategic tie-up with e-commerce giant Alibaba yesterday, underscoring the integration of traditional financial services with internet technology, which is changing the banking landscape on the mainland.

Minsheng Bank, the mainland's largest privately owned bank, said it would sell wealth management products through Alibaba, set up a direct-sale shop on Taobao, Alibaba's business-to-customer platform, develop information-technology solutions for banking services together with the e-commerce company, and collaborate in capital clearing and settlement and credit-card businesses.

Bank president Hong Qi said the co-operation was a "milestone" in the development of internet-based finance.

Beijing wants to open the banking sector wider to private capital, including internet firms, to improve financial services to smaller companies.

Banks, with 95 per cent of assets controlled by the central and local governments, have been saddled with rising bad loans after tilting lending to inefficient government projects for decades. Small companies and consumers are largely underfinanced.

Competition from internet companies providing financial services has been a wake-up call to lenders that previously made easy money by sitting on interest spreads.

Alibaba was one of the pioneers of internet finance services with its third-party payment system Alipay.

"Competition from internet companies delivers an intimidating message to Chinese banks," said Professor Guo Tianyong, from Beijing's Central University of Finance and Economics. "Seeking comprehensive co-operation could be a solution to the challenge in the era of big data."

Former deputy central bank governor Wu Xiaoling said regulators should consider giving a banking licence to Alibaba's micro-credit and Alipay units so they could take deposits and operate like real banks.

"Now, our country encourages banks to be set up by private companies," Wu said at a forum on Saturday. "Giving Alibaba a banking licence would show traditional banks what a bank could be in the internet era."