ABSTRACT
I have read the Decisions on Reforming the Banking System and Strengthening Centralized Credit Management and would like to comment on certain important issues.
Due to the substantial increase of equity funds in enterprises and of residents’
savings after the Third Plenary Session of the Eleventh CPC Central Committee,
bank deposits have risen considerably. The granting of loans by banks has been a
major economic restructuring policy in recent years, and it has achieved outstand-
ing results. Loans have been an important supplement to government appropria-
tions, and have been made to small-and medium-sized infrastructure projects,
especially for replacing equipment and undertaking renovations. At present, fi xed
assets are funded equally by government appropriation and equity funds of enter-
prises, including bank loans. (Equity funds must be deposited in a bank and the
balance is adjusted by the bank.) Bank loans, granted in a decentralized way, have
been out of control, however, which has been a major cause of the excessive con-
struction in recent years. Previously, there was a ceiling on the amount of bank
loans that could be used for fi xed assets. The People’s Bank of China is responsible
for controlling that upper limit, however, and it is not up to the task. As the Central
bank authorized by the State Council, the People’s Bank seems to be in an awk-
ward situation and unable to fulfi ll its responsibilities properly. As you said, the
reasons are twofold. First, the Bank is actually an industrial and commercial sav-
ings bank. It has a wide range of businesses involving both enterprises and citizens,
thus it cannot function properly as a Central bank. Second, the Bank competes with
specialized banks in making loans to enterprises, thus its competitors are reluctant
to follow its instructions. It is imperative, therefore, that we create a “bank of
banks,” or a Central bank, by extracting some core personnel from the People’s
Bank and other specialized banks. The new entity, still by the name of the People’s
Bank (with the old one to be renamed the Industrial and Commercial Bank) will
manage the fi nancial entities in the country and be in charge of specialized banks
under the leadership of the State Council. It will wield great power, but deal only
with specialized banks, not enterprises or individuals. Its organizational structure
may be streamlined in the future, and include fewer outlets.
