China to end monopoly of state-owned banks

Challenging for the first time the monopoly of state-owned banks, China has announced plans to broaden the financial sector reforms by allowing private capital financing.

Consensus has emerged among leadership of the ruling Communist Party to let private capital play greater role to reduce, if not break, the state sector’s banking monopoly, Premier, Mr Wen Jiabao, said.

This is the first time China has acknowledged the monopoly of state-owned banks following last month’s announcement of a pilot project to reform the financial sector in Wenzhou, an eastern coastal city with a tradition of entrepreneurship.

Mr Wen, who along with the President, Mr Hu Jintao, and other top leaders is set to retire this year, made the remarks while visiting some companies in Fujian province and the Guangxi Zhuang autonomous region, state-run China Daily reported today.

Analysts say the move to open up financial capital was aimed at increasing investment and competition in financial and banking sectors of the world’s second largest economy, giving more scope for its currency yuan to play bigger role.

Economists have long complained about a lack of progress in the reforms of the state-dominated banking and financial industry and of inadequate service for the country’s large number of small and medium-sized enterprises.

“Regarding raising funds for your businesses, I think it has been too easy, quite frankly, for our banks to make profits,” Mr Wen told businessmen during his visit to the factories.

He added: “The reason is that a small number of large banks are in a monopolistic position. It is only from them, and nowhere else, that companies get the loans they need.

“This is why we’ve now come to make way for private capital to enter the financial services sector, which ultimately requires breaking monopolies. There is already a consensus among the central leadership, which is reflected, as you can see, by the pilot reform in Wenzhou.

“I think some successful practices from Wenzhou’s pilot reform can be introduced nationally. Some of the practices may even be immediately implemented.”

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