Speculation over possible financial reforms in China is building as the opening of a high-profile financial work conference, which is held every five years and usually heralds significant policy changes, draws closer.
The third national financial work conference, scheduled for later this month in Beijing, comes at a time when China faces a host of new problems: a record high trade surplus of US$177.47 billion in 2006, a huge foreign exchange reserve that exceeds one trillion US dollars, stagnant domestic consumption and the possibility of a slowdown of the world economy.
These problems have formed a labyrinth rife with tricks and traps. A surging trade surplus will force the central bank to buy back foreign currencies with the yuan, which will increase the foreign exchange supply. To absorb liquidity, the central bank will have to raise central interest rates to raise the cost of loans. However, this will encourage saving, thus further dampening consumption.
Citing anonymous sources close to the organizers of the meeting, China Business News said that the central bank, the Ministry of Finance, the China Banking Regulatory Commission, the China Securities Regulatory Commission, the National Development and Reform Commission and the State Administration of Foreign Exchange had each prepared separate reports based on field research.
The reports will cover financial supervision, rural financial reform, foreign exchange management, state-owned financial assets control, the development of the capital market, opening-up of financing sector, reform of state-owned banks, corporate governance and the development of the insurance industry, according to the newspaper.
A more specific agenda reported by the 21st Century Business Herald included discussions on the shareholders reform of the Agricultural Bank of China, the last of the "Big-four" state-owned banks to be listed on the stock exchange, the transformation of the State Development Bank from a policy bank into a commercial one and following the deposit insurance system of western countries. The newspaper also reported that the conference would be held on January 19 and 20.
Qin Chijiang, secretary-general of the China Financial Institute, told the newspaper that the meeting would make breakthroughs in rural financial reforms to alleviate the capital shortfall in the countryside.
After the first national financial work conference was convened in 1997, the year a financial crisis swept through Southeast Asia, China adopted proactive fiscal and financial policies, set up the Insurance Regulatory Commission and instituted reforms of the "Big four" banks: the Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China.
The second national financial work conference opened in 2002, signaling the establishment of the China Banking Regulatory Commission, and the fiscal and financial policies were shifted to "prudent".
(Xinhua News Agency January 16, 2007)