THE People's Construction Bank of China (PCBC) is expecting to convert to a full commercial bank next year as part of the continuing reform of the mainland financial sector. News of the liberalisation plan emerged at a PCBC press briefing yesterday announcing the opening today of a representative office in Hong Kong. The bank, one of the four specialised banks in China, is expected to convert to a fully commercial bank next year, an indication that the reform programme for the banking system remains in place. The bank will be able to operate like any other commercial bank, free from current obligations placed on it by central fiscal funding and planning policy demands. All policy-related loans and activities will be transferred to a new state bank specialised in financing development projects. ''By that time, the new commercial bank will concentrate on commercial business, such as attracting deposits, developing commercial loans and credit-card business,'' said the bank's Hong Kong office chief representative, Guo Zhongjian. PCBC was set up in 1954 to finance the country's medium to long-term infrastructure projects. Funding come from the Government and capital-raising programmes abroad. All specialised banks in the mainland handle both commercial and policy loans in one account. ''The crux of the financial reforms was to strengthen the central bank role of the People's Bank of China (PBOC) and to commercialise the four specialised banks,'' said PCBC president Zhou Daojiong. ''The specialised banks will divide up their account book into two parts, one for commercial loans and another for policy loans made to advance government projects.'' The recently launched austerity drive has included a demand from the PBOC that illegal loans be withdrawn. Mr Zhou said banks had withdrawn one-third of the illegal loans, estimated to be around 70 billion yuan (about HK$94 billion at the official rate). After the drive to take back those ''improper'' lending, about 13.2 billion yuan was withdrawn. ''About half of those loans recalled cannot be considered as illegal because the projects have been approved by relevant authorities,'' general manager of the bank's international department Li Zaohang said. ''They are improper because they lent more than was originally planned to speed up progress. That upsets the country's overall fiscal planning,'' he said. The rest was spent on projects which had not been approved and were not on the Government's priority list. Fixed-asset development such as real estate is targeted for contraction. ''The rapid pace of hotels and bungalows construction has to be heavily braked,'' Mr Zhou said. However, other real estate projects closely related to people's livelihood would be unaffected. ''Housing estate projects for residents or quarters for company staff are still the major focus of government development,'' he said. The opening of PCBC's representative office in Hong Kong today will make it only the second specialised bank, after the Bank of China, to set up in the territory. The other two specialised banks, which are not represented in Hong Kong, are the Industrial and Commercial Bank of China and Agricultural Bank of China. The Hong Kong representative office is PCBC's fourth overseas office, after London, Tokyo and Seoul. The bank is now looking to Singapore and New York.