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Carrie Lee

CHINA'S banking system reform programme could suffer serious setbacks as the country struggles to accommodate huge losses incurred by its inefficient state enterprises, a Beijing official said yesterday.

    Mainland state enterprises are estimated to have accumulated losses last year totalling about 450 billion yuan (about HK$400 billion), compared with the aggregate working capital of about 150 billion yuan at its four specialised banks.

  Dong Fureng, vice-chairman of the Financial and Economic Committee of the National People's Congress, also warned that hurried financial reform would result in the collapse of many state enterprises.

  Even better-off commercial banks were feeling the pinch as specialised banks were taking longer than usual to clear commercial bank cheques in the prevailing cash-tight environment, he said.

  The specialised banks are the Bank of China, the Industrial and Commercial Bank of China, the Agricultural Bank of China, and the People's Construction Bank.

    Specialised banks were expected to suffer further difficulties when enterprises borrowed from them in due course to make up for their losses, he warned.

  ''If state enterprises do not reform, it is impossible for the banking system to undergo reform,'' he said.

  It is estimated that between 10 and 40 per cent of loans made by specialised banks will not be repayed.

  The central government forced the banks to extend loans to many enterprises when losses became so severe they could no longer pay wages, he said.

  About 80 to 90 per cent of state enterprise operations were funded by bank loans.

  The conversion of specialised banks into commercial banks, which is part of the reform package, should not proceed too fast, he cautioned.

  ''If the banks don't extend loans, state enterprises will not receive financing and will collapse. That's why it's not easy to turn those specialised banks into commercial banks within a short time,'' said Mr Dong.

  Even once new policy banks were established to replace the central banking functions undertaken by the four specialised banks, the burden of state loans would be transferred.

  He said policy banks should stop issuing bonds to the public as they were not profit-making operations.

  ''The banks may lose. Then who's going to buy their bonds?'' he asked.

  Under the existing regime, even commercial banks were not making profits due to government restrictions, he said.

  Commercial banks have run into problems with local officials. A commercial bank which has a shareholding structure, for example, had its general manager appointed by the Shenzhen government instead of the board of the bank.

  ''Commercial banks are regulated by the government as if they're specialised banks,'' he said.

  They also suffer from monopolies. The Bank of Communications, for instance, is not allowed to operate at county level.

  Mr Dong said the mainland's austerity programme, which aims at clamping down inflation, put many state enterprises into trouble. He said it should be implemented on an on-and-off basis.

  On the acquisition of A-share companies, Mr Dong said the initial trigger level for mandatory announcements - which is now set at any purchase of a stake equalling five per cent or more - should be relaxed.



Bank system reform runs into bad debt