CHINA COFFERS

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Nation's Top Regulator Calls for Chinese Banking Reforms

jiange li
Banking regulator Jiange Li spoke at 19th annual Handelsblatt Conference.
  • Why it matters

    Why it matters

    Banking reform in China could include acquisitions in Germany and elsewhere.

  • Facts

    Facts

    • Regulator Jiange Li is vice-president of the Chinese government’s bank holding company, Central Huijin Investment.
    • Most Chinese banks are state-owned and are dependent on economic reforms.
    • Mr. Li said investment returns in China are low, so looking abroad is enticing.
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    Audio

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A top official in the Chinese government’s bank holding company said his nation was open to acquisitions outside its borders.

At the 19th annual Handelsblatt Conference, “Banks in Transition,” Jiange Li was asked whether Chinese banks could conceive of buying German banking and financial services giant Commerzbank.

“We are on an expansion course with our eyes open,” said Mr. Li, who as vice chairman of state-owned Central Huijin Investment directly supervises China’s largest financial institutions. If a march into other countries were possible, “we are interested.” China has large foreign exchange reserves, and “that is slowly becoming a problem,” he said. Returns on investments in China are always low, he added, so involvement abroad was an enticing alternative.

If a Chinese bank were to take a stake in a European competitor, Mr. Li would have a major say. Central Huijin has majority stakes in the market leading Industrial and Commercial Bank of China and all of China’s credit institutions, which are among the world’s largest. Mr. Li is open about where the problems lie in his business. “I think we are still facing many challenges,” he said, adding that bank reform was dependent on a restructuring of the entire Chinese economy.

He identified heavy borrowing by municipalities, whose financial foundations are shaky, as among the biggest problems facing China’s banks. The strategies of some some state corporations were also cause for skepticism, he said.

China’s financial institutions emerged virtually unscathed from the global financial crisis that plunged banks into distress all over the world. No surprise, considering the financial system was sealed off from outside by capital controls – money couldn’t exit the country. Also, its banks usually don’t invest in complex products but, in general, act directly as an investor in industry.

Chinese banks owe their long-term high profits to state regulation. Credit and deposit interest rates are set at low levels. Chinese savers don’t earn much interest, but their deposits make easy profits for banks.

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