China's banking regulator issued
guidelines Wednesday to encourage financial innovation by commercial
lenders, such as increasing earnings made from fees and giving out less risky
The guidelines will take effect next Monday, the day China will fully open
its banking sector to foreign lenders in line with its commitment to the World
According to Tang Shuangning, vice-chairman of the China Banking Regulatory
Commission (CBRC), China's banking industry urgently needs to speed up its
financial reform to deal with rising competition after fully opening.
"Chinese commercial banks lag far behind their international counterparts in
terms of financial innovation," Tang said.
He said non-interest income generally accounts for more than 50 per cent of
the total income of big international banks. But the highest rate for Chinese
commercial banks from fees is less than 30 per cent and most of banks earn less
than 10 per cent.
He said the guidelines are the first such document concerning financial
innovation issued by the banking regulator, signalling a new stage of reform.
According to the guidelines, the CBRC will set up a sound legal environment
to encourage financial innovation. The regulator will further streamline
approval procedures and strengthen supervision to facilitate financial
The guidelines also emphasize the importance of risk control. They require
commercial banks have a good knowledge of their businesses, risks, clients and
In addition, the guidelines clarify commercial banks' obligations to
consumers, such as correct disclosure of information, professional services,
protection of assets, and offering effective complaint channels.
Despite this need for reform, Tang said, commercial banks in China have made
progress in financial innovation.
The CBRC's statistics show the trading volume of major commercial banks
reached 14 trillion yuan (US$1.77 trillion) last year.
Nearly 30 Chinese banks offer renminbi wealth management services, with a
total value of 130 billion yuan (US$16.46 billion).
A total of 17 foreign and Chinese banks have been approved to invest clients'
assets overseas under the qualified domestic institutional investor (QDII)
programme. So far, they have launched nine QDII products, with sales of 2.3
billion yuan (US$291 million) in renminbi and US$87 million in US dollars.
But more financial innovations need to be made, Tang said.
In addition to financial reform, commercial banks are being asked to engage
in public education, informing investors that they should be responsible for
their own purchasing decisions.
At yesterday's press conference Tang also said the Bank of Communications and
China Construction Bank have applied to establish insurance companies.