Ðåôåðàò: Redesigning the Dragon Financial Reform in the Peoples Republic of China
Reform of the banking
system in the PRC has taken on similar characteristics to reform in other
areas: i.e., gradual and experimental. At the beginning of reforms the
financial sector in the PRC could hardly be called a financial sector[20].
Financial sector development and implementation is a complex undertaking which
should include the development of institutions, instruments and markets[21].
Currently in the PRC, banking reform lags behind other areas of reform[22].
This is due to a complex array of policy decisions. No discussion of banking
reform in the PRC would be complete without an examination of the current state
of SOEs restructuring. Many macroeconomic initiatives are being put on hold in
order to bolster a failing state sector and postpone the social upheavals that
may be associated with the needed reforms of this sector.
Background
The Central Bank was
established in 1984. In 1987 two additional universal banks were formed and
non-bank financial institutions were started. In 1988 new capital markets were
formed and the secondary trade of government bonds was allowed. In 1990 the
Shanghai and Shenzhen stock exchanges were opened. In 1992 all treasury bonds
were issued through underwriters[23]. At the end of
1994, the PRC had a total of 13 banks (of which 3 were specialized banks and 3
were comprehensive banks). The new “financial system” contained 20 insurance
companies, 391 trust and investment companies and greater than 60,000 credit cooperatives
that operate in local areas[24].
During the summer of 1995
the central government announced a series of new banking laws would be
established. These laws were the People’s Bank of China Law, the Commercial
Banking Law, the Negotiable Instruments Law and the Guarantee Law. Up until
this time the roles of each party in the framework of financial transaction
hadn’t been clearly defined. These laws begin to lay the comprehensive
groundwork for financial transactions[25]. The People’s
Bank of China Law which was established in the summer of 1995 addresses the
internal organization of the People’s Bank of China, its monetary policy, its
supervision and tries to establish its autonomy from provincial and local
governments (it is still under the control of the State Council). This law has
provisions in it for setting the prime lending rate, rediscount window, amount
of funds to be lent to commercial banks, and the trade of treasury bonds,
government securities and foreign exchange. It also bars the People’s Bank of
China from financing the budget deficits of the central government and local
governments. The Commercial Banking Law addresses the mission of commercial
banks. These are still under the guidance of the State Council and still must
issue policy loans (although the law also states that any losses due to
defaults on these loans will be compensated by the State Council).
The Negotiable Instruments
Law is similar to the United States’ Uniform Commercial Code. The Guarantee Law
deals with mortgages, pledges, and liens. Both of these laws are hoped to
standardize and regulate credit transactions in the PRC[26].
Monetary Policy
Monetary policy in the PRC
is currently administered through a central “credit plan”. This plan, which
is administered by the State Council, sets credit quotas for each bank and also
facilitates direct bank financing of enterprises. In the current system the
major objectives of the specialized banks is to provide loans for various
projects, agriculture and foreign trade. The main recipients of these loans
are the state owned enterprises (SOEs). The terms and rates of these loans are
very favorable (usually 12%[27]). Therefore the
demand for these loans is higher than the supply and private companies have to
rely on other sources. This can take on various means and can often lead to
underground lending operations.
The convertibility of RMB has also been
undergoing changes. Prior to January 1, 1994, there were two money systems in
China. One for local use, the other for foreigners. These Foreign Exchange
Certificates (FEC’s) were redeemable only in state operated stores and
restaurants. Only higher level officials were able to use these and most
imported goods required the use of FEC’s. Since doing away with FEC’s , RMB
convertibility was relegated to official “swap shops”[28].
Now, with the correct permit businesses can use any large bank to exchange
money. However, the government has also begun to establish hard currency audits
as well as trying to force businesses to use the same bank for all of their
transactions (a way of tracking how much money is being exchanged). The new
convertibility does meet IMF requirements[29].
State Owned Enterprises and the
Social Safety Net
As illustrated above, the banking system
and state owned enterprises are closely linked (see Table 7 in Appendix, page
24, for financing of SOEs). According to Chinese government statistics, up to
20% of the debt of state banks is bad debt. International estimates place this
figure at almost double that amount[30]. Recently in
Jiangsu province, 30 SOEs declared bankruptcy telling the banks they were not
going to pay their debts. If all the banks in China did this it would lead to
bankruptcy of the banks[31]. SOEs account
for only 34% of industrial output but consume 73.5% of government investment[32].
Most have an average debt equal to 75% of total assets[33].
According to an Oxford Analytica study, in the first eight months of 1995, SOE
industrial output expanded by only 8.3% compared with a 13.7% increase for all
industry. And according to estimates, non-SOEs, on average, required less than
a third as much investment to achieve equivalent industrial output.[34]
These are serious problems. The ninth five
year economic plan (1996-2000) places priority on their eradication, calling
for SOEs to lay off workers to boost efficiency, and encouraging SOEs to
“declare bankruptcy if their liabilities outstrip assets, if they make
long-term losses and if they lose out in market competition.”[35]
Up until now current reforms and lessening of government controls have not only
not reigned in this problem but have also created new ones such as asset
stripping of the SOE by management, workers and local governments[36].
However, the central and local governments
are still hesitant to shut down even the most inefficient SOE. Currently, 7 out
of 10 industrial workers work in a SOE. The SOE provides not only a job but
housing, education, pensions, insurance and often energy sources and commodity
shops on site. The World Bank estimates that only 56% of total expenditure by
SOEs is actually on wages, the rest is on “social spending”[37].
Therefore, any reform involving the SOEs must also involve reform and
development of a social safety net. Pilot programs have been started where
local governments create pension pools and are putting aside payroll taxes for
education, health and unemployment benefits. It is also important to note that
the question of “social security” reform is being worsened by additional
factors. Population in the PRC is progressively growing older. This phenomenon
can be attributed to increase in life expectancy due to better living
conditions and the one child per family policy.
How Should Reforms be Implemented?
Due to the interconnectedness of these
areas of society, many of these reforms need to be implemented simultaneously.
In May of this year the World Bank published a Country Study[38]
that attempts to address these issues. The following are proposed reforms from
this study.
1) Reduce the role of
government in the directing of resources.
This over time would lesson the State
Councils role in directing the day to day functions of the banks and eventually
do away with the credit plan. Banks would be able to allocate resources
appropriately and to set their own interest rates.
2) Improve the Central Bank’s
management of monetary aggregates.
This over time would improve the
consistency of banking laws by ensuring that they are used and would also
remove policy lending from the banks and put it into the budget where it should
be. This would also allow for the development of the Central Bank as an
institution.
3) Transform state commercial
banks into real commercial banks.
This step would help to free the banks
from the current crises of bad debt and allow them to loan money to the newly
emerging private sector.
4) Improve governance, diversify
ownership and lower subsidies for SOEs.
In the short term this would include
implementing an accounting system and independent audits, give autonomy to the
managers, getting rid of unviable businesses and restructuring those SOEs that
can be.
5) Transfer social services
to the government.
This would reduce the burden on newly
restructured enterprises. Over time this would allow for a national system to
be implemented.
Conclusions
In comparison with other countries
undergoing transition from centrally-planned economic systems, China had the
luxury of initiating its reforms at a time when it faced no macroeconomic or
serious political crisis. It was able to adopt a two-track approach to
economic reform: China continued state control of existing enterprises while
loosening economic controls enough to permit growth of a new, nonstate sector.
This was possible in part because the inefficient state sector was a small
share of the economy, compared to most socialist nations.
China’s reform experience thus far has
been one of “enabling” reform, allowing “marketization” instead of forcing
“privatization,” getting government to “step out of the way” of the flows of
commerce. The results have been good to excellent in the productive sectors,
but the reform has not yet succeeded in the fiscal and monetary sectors, which
are the domains of government. Here the government can’t step out of the way;
it must build the proper tools and structures to manage these sectors.[39]
It is in these areas, and in the efforts to reduce administration, dismantle
SOEs, and provide an adequate social insurance system for displaced workers and
affected citizens that China faces its true reform challenges.
To further evaluate how far China has come
down the path of economic transition, we look to a definition of transition
used by the World Bank, which describes these three components:
·
Liberalization:
freeing prices, trade and entry to markets from state controls, while
stabilizing the economy. Stabilization is an essential component to
liberalization.
·
Clarifying
property rights and privatizing them where necessary. Requires re-creating the
institutions that support market exchange and shape ownership, and especially
the rule of law.
·
Reshaping
social services and the social safety net to ease the pain of transition while
propelling the reform process forward.
Examination of the Chinese experience
shows that liberalization has taken place to some degree, though much reform of
prices, trade and markets is still to be done. However, privatization and the
assignment of property rights are still very undeveloped, and the most
difficult parts of transition ahead are dependent on a still-unachieved
transfer of the social safety net from enterprise-based to government control.[40]
Were China to continue to grow at the
rates of the last two decades, it would surpass the United States as the
world’s largest economy in less than twenty years. Though some tapering off in
the growth rate is expected, China, with its sheer size and dynamism, is
emerging as one of the world’s economic powers. The reform policy choices it
makes during this period of transition thus have not only domestic but
international significance, as China’s domestic economic and social stability
will be felt internationally. The rest of the world has ample reason for
assisting China in seeing these reforms through peacefully. Opening of economic
activity within China and with the rest of the world will assist the process of
political liberalization within the country, and will provide enhanced regional
and global security.
Table 3. The Fiscal Situation in
the Reform Period
Source: Wong,
Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal Management and
Economic Reform in the People’s Republic of China. Oxford University
Press. Hong Kong: 1995, p.24.
Table 5.
Government Budgetary Expenditures
Source:
Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal Management
and Economic Reform in the People’s Republic of China. Oxford University
Press. Hong Kong: 1995, p.24.
Table 6.
Composition of Tax Revenues
Source: Wong,
Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal Management and
Economic Reform in the People’s Republic of China. Oxford University
Press. Hong Kong: 1995, p.24.
Table 7.
Changing Role of the State
Source: Harrold,
Peter. China’s Reform Experience to Date. World Bank Discussion Papers
#180. The World Bank:Washington, DC. 1992.
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[1] Spence, Jonathan The Search for Modern China. London: W.W.
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[2] Harrold, Peter “China’s Reform Experience to Date”, World Bank
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[4] Lele and Ofori-Yeboah, Unraveling the Asian Miracle.
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[7] Gao, Shangquan China’s Economic Reform. Macmillan Press Ltd:
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8 Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal
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[9] “China Budget Hurt By Tax Arrears.” Reuters Financial Service, 14
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[10] “Reform of China’s State-Owned Enterprises: A Progress Report of
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[11] Ibid.
[12] Hodder, Rupert. The Creation of Wealth in China: Domestic Trade and
Material Progress in a Communist State. Belhaven Press. London: 1993, p. 80.
[13] Wong, Christine. “China’s Economy: The Limits of Gradualist
Reform.” in China Briefing, 1994, ed. by William A. Joseph. Westview
Press. Boulder, CO: 1994
[14] Stevenson-Yang, Anne. “New Reforms and
Taxes for ‘94,” in The China Business Review. U.S.-China Business
Council. Washington, D.C.: January-February 1994.
[15] Peck, Joyce, Peter Kung, and Khoon-Ming Ho. “Enter the VAT,” in The
China Business Review. U.S.-China Business Council. Washington, D.C.:
March-April 1994.
[16] “China: Tax Policy Changes May Not Be Welcome to Companies, But Are
Good for China,” in Global Economic Forum. Morgan Stanley & Co.
Inc. 1995.
[17] Wong, Christine P.W., Christopher Heady, and Wing T. Woo. Fiscal
Management and Economic Reform in the People’s Republic of China. Oxford
University Press. Hong Kong: 1995.
[18] IWR Daily Update. Vol. 2, No. 104, 25 April 1995.
[19] Harrold, Peter “China’s Reform Experience to Date” World Bank
Discussion Paper #180, 1992.
[20] Mehran and Quintyn, “Financial Sector Reform in China” Finance and
Development, March 1996.
[21] Ibid.
[22] Tseng, W et al. “Economic reform in China: A New Phase” , IMF
Occasional Paper #114, November 1994.
The Chinese Economy: Fighting
Inflation, Deepening Reforms World Bank Country
Study Washington, DC, May 1996.
[23] Ibid
[24] Xu, Dianqing “China: Contradictory Measures Frustrate Bank Reform”
Center for International Private Enterprise, Washington DC, 1995.
[25] Mehran and Quintyn, “Financial Sector Reforms in China” Finance and
Development, March 1996.
[26] Ibid.
[27] Xu, Dianqing “China: Contradictory Measures Frustrate Bank Reform”
Center for International Private Enterprise, 1995.
[28] Forney and Sender “Ever So Careful: China cautiously extends the
renminbi’s convertibility” Far Eastern Economic Review, July 4, 1996.
[29] Ibid.
[30] “Passing the Buck” Far Eastern Economic Review, October 10, 1996.
[31] Ibid.
[32] The Chinese Economy: Fighting Inflation, Deepening Reforms.
A World Bank Country Study May, 1996.
[33] Forney, Matt “Trials by Fire” Far Eastern Economic Review,
September 12, 1996.
[34] “Reform of China’s State-Owned Enterprises: A Progress Report of
Oxford Analytica.” World Bank Web Page, November 16, 1996
(http://www.worldbank.org/html/prddr/trans/dec95/china.htm)
[35] Macartney, Jane. “Focus - China Unveils 5-Year Plan Low on
Initiative.” Reuters Financial Service. March 5, 1996. Available
through Lexis/Nexis ASIAPC library, China file.
[36] Ibid.
[37] Ibid.
[38] The Chinese Economy: Fighting Inflation, Deepening Reforms.
A World Bank Country Study, May 1996.
[39] Wong, Christine. “China’s Economy: The Limits of Gradualist
Reform.” in China Briefing, 1994, ed. by William A. Joseph. Westview
Press. Boulder, CO: 1994, p. 51.
[40] “World Development Report Stresses Benefits of Sustained,
Continued Reforms.” World Bank News, Vol. XV, No. 25. June 27, 1996.
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