China To Boost Private Sector Investment In Banks

President Hu Jintao

China has opened up its banking system to private sector investors, the latest move by Beijing aimed at underpinning economic growth.

Over the weekend, China said that private investors would have the same rights as state firms when trying to invest in domestic banks.

Despite China’s strong economic growth, critics say expansion has been hampered by an inefficient banking sector.

China recently opened up other sectors such as energy and telecommunications.

The hope is that by attracting new foreign investment, China can stimulate a fresh and enduring phase of economic development.

The changes to the bank restrictions were announced by the China Banking Regulatory Commission, which was quoted as saying it wanted to boost lending and increase the efficiency and transparency of the banking market.

According to the new rules, private-sector investors will be allowed to purchase stakes in Chinese banks through a number of means including stock placements, new share subscriptions, equity transfers, and mergers and acquisitions.

The move comes after China’s outgoing Premier Wen Jiabao said in April that the country needed to break up the monopoly of national banks, saying it was “too easy” for national banks to generate profits.

At the same time he complained that they were not lending enough.

One of the areas where China has seen problems has been in the way banks lend to small and medium-sized businesses.

This has seen an increase in the amount of illegal and non-sanctioned lending, a problem that policymakers have said they want to reduce.



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