New Laws Boost Banking Industry Supervision and Management

By Stephen M. Harner, S.M. Harner and Company, Shanghai

That Chinese banking has reached a new and more hopeful stage is amply evidenced by the NPC Standing Committee¡¦s adoption of three important banking laws (two of which are revisions of existing laws) on December 27 2003.All three are effective from February 1 2004.  Not coincidentally, at the same meeting the government decided to transfer US$45 billion of state foreign exchange reserves to the Bank of China and the China Construction Bank (similar cash injections to the Industrial and Commercial Bank of China and the Agricultural Bank of China are certain to follow).  All the parties to the transactions ¡V including senior party and government officials and the senior party cadre who manage the state-owned banks ¡V are acutely aware of the imperative to ensure that the huge new commitment of state resources is not simply squandered; that is, that the careless and corrupt practices characteristic of Chinese state-owned banks must be reformed, and quickly. 

This is clearly the purpose of the three new laws.  As a whole, the statutes establish and delineate the powers of the China Banking Regulatory Commission (CBRC), and revise the PRC Commercial Banking Law (中华人民共和国商业银行法)(Commercial Banking Law) and the People¡¦s Bank of China Law (Central Banking Law) in light of the establishment of the CBRC. The CBRC has assumed many of the functions and authorities previously exercised by the PBOC. The overall objective of the revisions seems to be to put ¡§teeth¡¨ into bank regulation in China.  It is noteworthy that in this rare formal revision of two major banking laws, virtually nothing has been done to relax the strictly segmented financial system and its Glass Steagall-type regulatory framework.