Policy banks must adapt to market: official
(Shenzhen Daily/Agencies)
Updated: 2005-08-10 10:02

China policy banks must adapt as the government takes a back seat to the market in stimulating economic growth, an official from the central bank's research bureau said.

China's three policy lenders — China Development Bank, The Export-Import Bank of China and Agricultural Development Bank of China — must go beyond their traditional roles and become more "comprehensive development lenders," said Zhang Tao, deputy director of the research bureau of the People's Bank of China (PBOC).

He cited Thailand's Bank for Agriculture and Agricultural Cooperatives and South Korea's Korea Development Bank as potential models to follow.

Under these models, the financial institutions set up separate accounts, with one national account for policy-directed lending, and another account for nonpolicy or bank lending.

"The policy lenders must be more closely integrated with the market and become new financial institutions, which would operate in line with the law of the market, be able to sustain operations and meet the demand of the market," Zhang said.

The lenders must make loans based on commercial viability, said Zhang. They needed to establish modern banking systems and develop businesses that could include taking in customer deposits in the future, he said.

While the government would retain some influence over the banks, the lenders' role would have to go beyond assisting economic development as a form of government subsidy, he said.

"In the future, the room for fiscal expansion won't be large," Zhang said. Government expenditure rose to 20.8 percent of the nation's gross domestic product in 2004, from 12.4 percent 10 years ago, said Zhang.

The expansion of direct government investment in industrial development would be particularly limited, he said.

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