Revision of the law governing the People's Bank of China and commercial banking is drawing to a close, Beijing-based Economic Observer reported recently. The report said that a working group, composed of the Legislative Affairs Office under the State Council, Treaty and Law Department under the People's Bank of China and the newly established China Banking Regulatory Commission (CBRC), was reforming banking law.
As early as the establishment of the China Banking Regulatory Commission, the revision of banking law has been urgently needed to ensure the legal status of the central bank. Since CBRC set to work on April 28, the revision of the People's Bank of China Law has been put on the fast track.
A central bank official, who was reluctant to give his name, said that high-level financial officials had appointed a working team for banking law revision at the start of 2003. "The working team will submit the revision draft early August to the Financial and Economic Committee under the National People's Congress Standing Committee for elementary review, then send it to the NPC Law Committee for discussion, and take a vote in the NPC Standing Committee," he said.
Another member of the Financial and Economic Committee under the NPC Standing Committee said the framework of law reform had been confirmed. The two main subjects: to split banking supervision from monetary policy decision-making and mixed financial operation, will be detailed. Currently, the management of state-owned banks' assets has become the focus of argument. Some propose that the central bank should take over these assets and manage them directly.
The unnamed central bank official said that after bank law revision, the central bank would keep its function to make and implement monetary policy and supervise payment. Through law revision, the function of the central bank and China Banking Regulatory Commission was legally divided. The revision of the Commercial Banking Law would also follow market rule.
Dr. Wei Jianing, a researcher of the State Council Development Research Center, mentioned that government should ask for opinions of representatives in the financial sector, especially financial experts, so that the law could be more perfect.
The revision will embody six aspects:
First, to set up new decision-making mechanism.
Second, central bank independence (CBI) will be enhanced.
Third, modify decision-making of monetary policies. The Monetary Policy Committee of the central bank will become the decision-maker instead of consultants as before. It will help to ease the forex pressures on Renminbi, China's currency.
Fourth, to set up a prevention and protection mechanism to ease the pressures of Renminbi appreciation.
Fifth, strengthen central bank's right to inspect financial institutions.
Sixth, stress fair treatment toward commercial banks. The China Banking Regulatory Commission should treat state-owned banks, commercial banks and foreign-funded banks the same.
Dr. Wei predicted that the two following aspects would be considered in banking law revision. The divided financial operation will be turned to a mixed operation, and the limit on mixed operations will be gradually abolished. In the transitional period, commercial banking will be allowed to invest in non-banking financial institutions; the framework of financial holding company, including its supervision, system and operations, will take shape. In addition, risk management will be introduced, boosting the mode of financial holding companies.
(China.org.cn translated by Tang Fuchun, June 18, 2003)
