Learn Mandarin: Chinese language - 10th Five-Year Plan

BIZCHINA / Finance

10th Five-Year Plan

Updated: 2006-04-18 10:13

Tenth Five-Year Plan of Banking Industry and its Development

Overview of the Banking Industry

1. Outline of the banking industry

China's financial system has experienced great changes since the reform
and opening up, with the People's Bank of China (PBC) as the central
bank, State-owned commercial banks as the mainstay and other various
forms of coexisting financial institutions. By the end of 2000, there
were more than 100 banking institutions, including three policy banks,
four State-owned commercial banks, 10 joint-equity commercial banks and
99 city commercial banks.

China's banking industry has lent strong support to the healthy
development of the national economy. During 1993-99, State-owned
commercial banks contributed 640 billion yuan (US$77.1 billion) to the
central budget, accounting for 29 percent of total profits and taxes of
State-owned enterprises in the corresponding period by paying taxes,
surrendering a part of the profits and tax reduction.

By the end of 2001, the amount in deposit balances and loan balances of
State-owned commercial banks hit 8,700 billion yuan (US$1,048.19 billion)
and 6,400 billion yuan (US$771.08 billion) -- up 13.7 and 11 per cent
respectively from the corresponding period last year.

2.Legal construction of the banking industry

In recent years, China picked up the pace in its construction of the
financial and legal systems, and gradually established a set of legal
bases for conducting banking operations and supervision, with the Law of
the People's Bank of China and the Law of the Commercial Banks as the
mainstay.

On the basis of the four financial laws, the People's Bank of China
formulated a set of financial rules and regulations to take strict
precautions against financial crises. These administrative regulations,
highly adaptive and maneuverable, played an important role in
standardizing financial operations and making the contents, methods and
procedures of financial management and operations clear.

At present, China's financial legislation emphasizes two points: to
perfect the financial and legal systems and make a complete clean up and
revision of financial laws, principles and regulations in line with the
World Trade Organization (WTO) rules and commitments China made after its
entry into the WTO. To date, the Intermediary Operating Regulations of
Commercial Banks and the Interim Regulations of Internet Bank's Business
Management have been enacted.

With the prudent accounting system being continuously promoted and the
sufficiency rate of capital increased, commercial banks will count and
withdraw the provisions of bad debts, write off bad debts on a timely
basis, withdraw enough interest payable and adjust overdue interest to
ensure the reliability of profits is compatible with financial and
accounting systems as revised by the Ministry of Finance, including the
generally accepted prudent accounting principles.

In 1998, China reformed its system of bad-debt reserves of financial
institutions. The time to withdraw 1 percent of the loan balance at the
beginning of each year was changed to the end of each year. In 1999, the
time limit for repaying overdue interest was changed from two years to
one year, and, again in 2000 from one year to six months. China also
planned to reduce the sales tax rate of commercial banks from 8 percent
to 5 percent, relax the identification terms of bad debts and expand the
scope of withdrawing bad debts within three years since 2001.

Until now, eight joint-equity commercial banks have made the annual
supplementary report on financial affairs and accepted the audit from the
international accounting office. Four State-owned commercial banks have
analyzed and estimated the impact of such a reform over the next five
years of financial affairs and profits and losses. Commercial banks
should increase their capital and ability to resist a crisis through
self-accumulation, financial capital increases, issuing long-term
financial bonds and IPOs and splitting stocks.

3. The corporate management of commercial banks and its reform of
institutions and the credit system

State-owned commercial banks have basically completed their amalgamation
of provincial branches with its city branch, proper trimming down of city
sub-branches and the removal, amalgamation and adjustment of county
sub-branches and its Internet institutions. By the end of 2000, the four
State-owned commercial banks have removed and amalgamated about 116,100
branch institutions at all levels, with a reduction in 127,200 employees.

According to the Key Rules for the Supervision and Management of
Effective Banks under the Basel Agreement, several regulations, such as
Advice about the Corporate Management of Joint-equity Commercial Banks
and Guide to the Management of Commercial Bank Companies, have been
created to help small and medium-sized commercial banks perfect their
structure of corporate management. In 2000, to optimize the supervisory
system of State-owned financial institutions, boards of supervisors were
sent to 16 State-owned major financial institutions to conduct
supervisions on behalf of the nation.

1)Establishing the five-level classification system of credit assets and
strengthening the management of credit risks.

The banking sector divided credit assets into five categories under the
status of its own assets and international experience: normal, doubtful,
worthy of concern, secondary and loss. This way, the degree of risk of
the bank's credit assets will be more accurately revealed. The banking
sector also created The Classified Guides to Loan Crises and tested the
five-level loan classification system. In April 2000, the four
State-owned commercial banks and nine joint-equity commercial banks made
a five-level classification to 7,000 billion yuan (US$843.37 billion) and
improved their credit-management level.

In 2001, PBC made a significant examination of the five-level management
of those State-owned commercial banks with a view to create favorable
conditions under which the five-level classification management would be
a major method in credit assets quality management. PBC set up a check-up
system to cover the main aspects of risk supervision for State-owned
commercial banks. Under such a system, 13 indicators in four categories,
including assets quality, profit-making ability, capital ratio and
liquidity, will all be evaluated. In general, this check-up system
reflects the operation of the State-owned commercial banks at a certain
time. The application of such a system signals a great change in the
banking management system from qualitative supervision to quantitative
supervision and aspires to improve the management level of the
State-owned commercial banks.

2)Removing bad loans and increasing credit assets quality.

In 1999, four financial asset-management companies were established. The
objective was, firstly, to isolate bad loans and convert bad State-owned
commercial bank loans into bonds guaranteed by the Central Budget to
improve bank credit. Secondly, to shift the operation mechanism of
enterprises, the State invests in enterprises to change the way in which
they operate by transforming debts into stocks, thus helping State-owned
companies achieve the goal of escaping their predicament within three
years. In November 2000, the State Council released the Regulations of
Financial Assets-Management Companies; corollary regulations were also
published in succession. By the end of 2000, the four companies finished
isolating and acquiring bad debts of State-owned commercial banks
successively with a total amount of 1,393.2 billion yuan (US$167.86
billion).

Page: 1 2 3 4 5 6

(For more biz stories, please visit Industry Updates)

Learn Mandarin

Tuesday, December 18, 2007

Chinese language - 10th Five-Year Plan

Sponsor AD

Blogroll

Labels

Blog Archive