China will set its priorities for finance reform for the next five years at a top-level party conclave next week expected to focus on rural banking and an enhanced role for the country’s largest financial holding company.
The so-called finance work committee meeting, to be chaired by Wen Jiabao, the premier, has been held twice before – in 1997 and 2002 – and in both cases resulted in substantial and far-reaching policy changes.
The government has so far not announced the existence of the closed-door meeting, let alone its date or agenda, but has consulted extensively in recent months with local economists and scholars about the issues to be tackled.
The topics discussed in preparation for the meeting include the recapitalisation of the Agricultural Bank of China, the last of the country’s big five lenders slated for an overhaul.
The reform of the ABC, which had a non-performing loan ratio of 23.6 per cent mid-last year, presents a huge problem because of its relatively poor customer base in rural areas and the huge of cost of any recapitalisation.
The ABC’s tarnished image also makes it difficult to attract a strategic foreign investor ahead of an overseas initial public offering, the successful formula used to restructure the other large state banks.
The meeting could sanction a more independent role for Central Huijin Investment, a controversial financial holding company under the People’s Bank of China, the central bank.
Huijin holds controlling shares in two of the country’s three largest banks and 50 per cent of the biggest, the Industrial and Commercial Bank of China, as well as holdings in numerous other institutions, such as brokerages.
Huijin has been touted as a Chinese version of Temasek Holdings, the Singapore government company that manages the city-state’s investments both locally and overseas.
“Basically, turning Huijin into something like Temasek is not that difficult,” said a Chinese economist.
Huijin could also have a role in the more active management of a portion of China’s foreign exchange reserves, another issue being debated in China that could come up at the meeting.
Local economists and scholars said that the meeting would also look at reform of the small and underdeveloped corporate bond market.
Corporate bonds remain under the control of the risk-averse economic planning ministry, which has approved few issuances, prompting the central bank to set up an alternative market for short-term commercial bills.
One proposal before the meeting would allow the China Securities Regulatory Commission, the stock market regulator, to approve issuances by listed companies.
The meeting is likely to issue a communiqué, but only in general terms, laying the groundwork for different and often competing ministries to prepare and win approval for detailed policies.
Rivalry between the central bank and the ministry of finance has been especially intense in recent years, as the PBoC has taken the lead in reforming the large banks.
One proposal under discussion last year – the establishment of a new “super-regulator” to improve co-ordination in a sector hamstrung by infighting and inertia – appears to have fallen out of favour.