Business / Policy Watch

New private banks underscore China's resolve for reform

(China Daily) Updated: 2014-07-28 20:40

BEIJING - China's decision to approve three new private banks marked the country's latest efforts to create impetus through deepening reform amid an economic slowdown.

The country's banking regulator said Friday that it has given the green light for the establishment of three banks wholly funded by private firms, including Webank by Internet giant Tencent.

All three banks, which understand private firms, will mainly target small companies, according to their founders.

The breakthrough in China's financial reform came at a time when the country's growth has slowed from the double-digit pace in the past few decades, and various structural problems including insufficient funding to small firms, which has hindered growth.

Growth picked up slightly to 7.5 percent year-on-year in the second quarter from the 7.4-percent pace in the first. But the upturn is not yet on a solid footing and momentum has to be consolidated.

To maintain medium to high speed growth, Chinese leaders have said on various occasions that the country will seek impetus through three ways -- deepening reforms, adjusting economic structure and improving people's lives.

Setting up private banks is a major move in that direction as finance is regarded as the lifeblood of the economy, making it an important aspect in deepening comprehensive reform.

In addition, small and medium-sized companies create more jobs for the country than state firms, thus playing a big role in raising people's incomes.

Small firms, which have lost in the race for loans against much stronger state-owned companies, and paid higher rates than their state peers, will embrace more opportunities with the introduction of the new private banks.

Skeptics may argue that what the three banks can do is limited given the large size of the Chinese economy and the great number of small firms. But it is important to note that the newcomers will create a catfish effect in the sector with increased competition. The banking regulator has also made it clear that the pilot program will expand.

China has seen an acceleration in the pace of reforms in the past year, including a widening of the yuan trading band, a removal of controls on bank lending rates and power delegation to lower-level governments.

All of these are progressive examples of China's willingness to experiment different policy approaches to fix distortion in the economy as it pursues steady and sustainable economic growth.

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