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Business
Cover Story Series> Business
UPDATED: May 7, 2012 NO. 19 MAY 10, 2012
Breaking Up Banking Monopolies
China needs to revitalize the real economy and free up capital for small businesses
By Lan Xinzhen
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Ma Guangyuan, researcher at the Institute of Risk Investment of Peking University, also expressed discontent with the financial reform designed by the top level. He said in his blog that the scheme of Wenzhou's financial reform is still far behind market expectations.

Ma said there are many problems in China's financial sector that need to be solved, such as breaking the financial monopoly, introducing market-oriented reform of interest rates and legalizing private lending. These are all urgent, particularly the market-oriented reform of interest rate. But regrettably, the financial reform scheme approved this time gives no response to the most urgent topics in the reform.

Ma warned that in terms of the timing of reform, now is the best window of opportunity to push for significant financial reform. Conditions are ready to legalize private lending, allow private capital to enter state-owned financial institutions and adopt market-oriented formation of interest rate. If this chance is allowed to pass by without change, it will be more and more difficult for future reforms.

Chinese Structure of Banking Sector

Banks in China are divided into state-owned banks, foreign-funded banks, joint-stock banks and private financial institutions. Among the total assets of domestic banks, state-owned banks account for 90 percent, joint-stock banks 7 percent, foreign-funded banks 2 percent and private financial institutions less than 1 percent.

(Source: China Banking Regulatory Commission)

Highlights of Financial Reform in Wenzhou

- Regulate development of private financing and set up filing and monitoring mechanisms for private financing;

- Support private capital to participate in local financial reforms and launch or participate in the establishment of village banks, credit companies and rural cooperatives;

- Develop special asset management institutions, and guide private capital to set up venture capital, equity investment companies and related investment management institutions;

- Research to carry out pilot projects on individual direct investment and explore to establish convenient direct investment channels;

- Encourage state-owned banks and joint stock banks to set up special institutions of credit to small enterprises, support financial leasing companies and other non-bank financial institutions to develop business, and promote joint stock transformation of rural cooperative financial institutions;

- Innovate the development of financial products and services offered to micro and small enterprises, agriculture, the countryside and farmers, and strengthen credit support and comprehensive services to them;

- Carry out stock transfer and property right transactions of technologies and culture by non-listed companies;

- Actively develop bond products of various types, and promote more enterprises, especially micro and small ones, to establish and improve the re-guarantee system;

- Expand insurance services, develop insurance products serving special markets and industrial clusters, and support commercial insurance to participate in the construction of the social security system;

- Enhance construction of the social credit system, promote construction of the credit system of micro and small enterprises and the rural credit system, and strengthen supervision of the credit market;

- Encourage state-owned banks and joint stock banks to set up special institutions of credit to small enterprises, support financial leasing companies and other non-bank financial institutions to develop business, and promote joint stock transformation of rural cooperative financial institutions;

- Establish a comprehensive statistical system for the financial industry and strengthen supervision and pre-warning;

- Establish risk-control mechanisms for the comprehensive financial reform.

(Source: Wenzhou government financial reform plan)

Highlights of Financial Reform in Shenzhen

- Push forward pilot of trans-border renminbi loans between Shenzhen and Hong Kong;

- Establish Qianhai Equity Exchange;

- Set up national-level venture capital mother fund for emerging strategic industries;

- Establish a uniform management institution for capital of multinational corporations;

- Construct an innovative bond market.

(Source: Shenzhen government financial reform plan) 

Email at: lanxinzhen@bjreview.com

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