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Central Bank to Relax Rules on Foreigners
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China will press ahead with its opening-up and relax restrictions on foreign investors in the financial services sector, the People's Bank of China said Monday.

It "will, in a modest manner, allow foreign investors to take more stakes in the financial services sector and relax the restrictions on their business scope and origin," the central bank said in its second China Financial Stability Report. But it did not elaborate in the report.

The report comes only a month away from the country fully opening the banking sector in line with its World Trade Organization commitment.

It would also "determinedly push forward the reform of State-owned commercial banks to improve their ownership structure, corporate governance and internal control mechanisms, provided that the State remains (their) absolute majority shareholder," the central bank said.

It also vowed yesterday to beef up its control on major financial institutions to safeguard national financial security.

According to the report, China has made breakthroughs in financial reform and dealt well with financial risks, with the overall financial system stable last year.

"The rapid yet stable national economy has laid a sound foundation for achieving financial stability," the central bank said.

But it warned that international imbalances and swings in oil and other resource prices may impact the country's financial stability.

And the intensifying competition and potential risks that may arise from financial innovation may also pose risks to China's financial stability, the central bank added.

Direct financing is still developing at a sluggish pace in the country as enterprises rely heavily on bank loans. This "is concentrating on banks some of the risks that should have been shouldered by financial markets," the central bank said.

This financial structure is detrimental to the operations of banks and to the prevention of systematic financial risks, it said. The central bank also said yesterday it would accelerate the establishment of a deposit insurance mechanism.

(China Daily October 31, 2006)

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