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To: michael zhang who wrote (27258)	12/30/1997 9:04:00 PM
From: John Rieman	Respond to of 50808

China's Bank restructuring...................................................... insidechina.com Reforms Seen Pinching Bank Funds, Liquidity SHANGHAI -- China's ambitious plan to restructure its struggling state sector will carry a hefty price tag that will strain bank deposits and tighten liquidity, analysts said. The plan to overhaul the nation's 300,000 state-run companies -- which employ more than 100 million people -- would not be completed in the targeted three years and would need to be stretched out to five years at least, they said. China's economic czar, Zhu Rongji, has said Beijing aims to turn around most loss-making state enterprises in three years. A study by Dresdner Kleinwort Benson concludes that industrial restructuring will require a total of 4 trillion yuan (about $500 billion), and that combined with China's other demands for funds will mean several years of tight liquidity. "If 4 trillion is needed...it will exceed all the funds that the economy can generate," the study said. "There will be a liquidity squeeze," said the report, written by analysts Hugh Peyman and Qu Hongbin. China's communist leaders, at a landmark congress in September, endorsed a program to breathe new life into the ailing state sector by using stock sales, mergers and even bankruptcies. While the turn to the stock market for capital has grabbed headlines, many of these money-losing companies will in fact sell shares internally to their own management and employees. Many state companies need to be recapitalized and Dresdner Kleinwort Benson concludes the bulk of the funds would come from household deposits, which now constitute 40.4 percent of the nation's total financial assets. Workers will dip into their bank savings as they are required to buy equity in many state companies to keep them afloat. Deposits at banks and other financial institutions were expected to reach 8.12 trillion yuan by the end of the year, up 1.18 trillion yuan from the end of 1996, according to the official media. That already is slower than last year's growth, and the prospect is for an even slower pace in the years ahead, analysts said. The researchers estimate the economy annually needs some $325 billion for infrastructure, industrial modernization, working capital and new investment in non-state companies in addition to the annual restructuring toll. They estimate the economy's recurring needs coupled with the cost of restructuring would leave a shortfall of $330 billion a year during the three years of the restructuring. The gap would fall to $250 billion a year if the reform program were stretched out over five years. While other economists hesitated at putting a price tag on the revamping of the state sector, they agreed the banking system would feel the strain of industrial restructuring. "Competition for funds will be on the rise," said Joe Zhang, economist with Credit Lyonnais Securities in Hong Kong. "A lot of companies are saying 'you can keep your job if you contribute,'" he said. He suggested that some of the bank deposits now held by workers would be shifted to corporate savings accounts as employees buy shares in their companies. Other economists said that the broad scope of the reform program would mean the target of resolving the problems of inefficient state industry within three years was overly ambitious. "It will be difficult to achieve in three years," said Pan Yingli, a professor and economist at East China Normal University. Other analysts questioned whether the heavy expense would achieve the results Beijing wanted. Chen Tiwei, general manager of Shanghai GEM Investment Management Ltd., an investment and consulting group, said he agreed that bank deposits would show an impact from the restructuring program. But Chen said he was most concerned that the money spent might go to waste. "Many of these companies are hopeless," he said. "We want to direct the funds to those that will survive." (US$1 = 8.3 yuan) (Reuters)