Interesting WSJ article on 'illegal loans' in China.
October 13, 1998
China Vows Further Bank Reform Along the Lines of Gitic's Closure
By IAN JOHNSON Staff Reporter of THE WALL STREET JOURNAL
BEIJING -- The recent shutdown of a leading Chinese financial institution marks the first step in what authorities promise will be tighter regulation of the financial industry following a sweeping reorganization of the central bank.
In an interview Monday, an official with the People's Bank of China said the bank's restructuring would make it easier to take actions similar to last week's closure of high-profile Guangdong International Trust & Investment Corp., or Gitic. He said the central bank was drawing up new rules to standardize the procedures used to close Gitic.
"When a problem arises, we'll close the organization according to the law and clear the loans," said Wei Gejun, spokesman for the central bank's governor, Dai Xianglong.
Minimal Staff Cuts
Mr. Wei said loans made by creditors for "illegally high interest rates" or for other prohibited activities may not be repaid. Gitic's $2.4 billion in outstanding liabilities have been transferred to the Bank of China, which promises to repay principal and interest in full -- but only on legal debts, said Mr. Wei.
With the global economic crisis focusing attention on increased financial oversight, the central bank has been spared the drastic staff reductions at other ministries in China's continuing effort to cut its bureaucracy. The bank has cut its headquarters staff to 760 from 1,000, and virtually all remaining midlevel bureaucrats have specialized training in finance, with most holding advanced degrees. "Now only a few old comrades have just undergraduate degrees," said Mr. Wei.
Besides slimming down, the bank has taken on responsibility for overseeing the foreign-exchange business of financial institutions, including access to foreign-exchange markets and banks' foreign-exchange loans -- jobs that used to be handled by the State Administration for Foreign Exchange. And it has relinquished control of securities companies to the China Securities Regulatory Commission after taking that responsibility from the commission last year. Insurance companies will be handled by a yet-to-be-established organization. The thrust of these transfers, said Mr. Wei, is to make the central bank responsible for monetary policy and financial organizations.
Control Remains With State Council
To deal with the banking industry's mounting pile of bad loans, Mr. Wei said the bank was still considering establishing an organization like the Resolution Trust Corp., which a decade ago sorted out insolvent savings-and-loan institutions in the U.S.
Despite the reforms, the central bank remains very much under the control of the State Council, the rough equivalent of the U.S. cabinet. The final decision to close Gitic, for example, was made by the council, said Mr. Wei. And he said the bank's recently established Currency Policy Committee -- often seen as the equivalent of the U.S. Federal Reserve's Federal Open Market Committee -- only has the power to recommend interest-rate cuts, with the final decision the State Council's.
Mr. Wei said the next step in reforms will be consolidating the bank's 32 regional branches into nine branches, a task scheduled to be finished by the end of the year. |
