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          Chinese banks not ready for major currency changes
          ( 2003-09-18 07:13) (China Daily)

          Chinese currency should remain stable for the time being to avoid any big impact on the country's banking industry, said a message from the ongoing 2003 Forbes Global CEO Conference.

          The rate of non-performing loans with China's banking system has been reduced from previously over 50 per cent to around 20 per cent last year, according to statistics from the conference.

          Such a rate indicates that the country's banking industry remains "very fragile'' and deserves to be monitored closely, said Stuart Gulliver, HSBC Chief Executive, Corporate, Investment Banking and Markets.

          "So we strongly recommend China maintain the stability of its renminbi and not to initiate any reforms against stability of the country's banking industry for the time being,'' said Gulliver.

          As for the big trade deficit between China and the United States, Gulliver argued that the factor also may not become the reason for requiring the renminbi's immediate revaluation.

          More and more foreign enterprises have moved their manufacturing bases to China to reduce costs. But all these products are currently being trailed as originating in China, according to Gulliver.

          China, in pursuit of a more mature market economy, has said its goal is to have a more flexible exchange administration system and eventually to float the renminbi to let market forces decide its value.

          But it should be a gradual process. Things could be done in the process that include allowing exporters to retain an increasing part of foreign currency earnings, relaxing the control on foreign exchange demand and letting the renminbi float in a bigger range than its current level, according to Gulliver.

          But neither Chinese banks nor enterprises have yet developed the necessary capability to deal with a more flexible exchange rate system.

          So the timing, at the moment, is not right for making major changes, he said.

          In another development, the China Security Regulatory Commission (CSRC) yesterday urged domestically listed companies to implement the system of independent board members to help improve their corporate governance.

          "From our perspective, the interests of shareholders are important for the capital market,'' said Tong Daochi, deputy director of the CRSC's listed companies supervision department. "Good corporate governance does not lead to good performance, but bad performance usually leads back to bad corporate governance. Shareholders' interests must be protected.''

          On such a basis, government welcomes overseas businesses to further increase their investment in China, not only to invest directly, but to also join in the corporate governance of Chinese companies through merger & acquisition (M&A), he said.

          China's banks and capital markets have been hot topics among business leaders at the 2003 Forbes Global CEO Conference.

          Since China launched its stock market in the early 1990s, huge strides have been made to create "a meritorious lending culture and a vibrant market in stocks and bonds,'' said Justin Doebele, senior editor (Asia) of Forbes magazine.

          Although private and foreign financial institutions have begun to figure in China's market, the country's overall banking system is still overshadowed by the spectre of questionable loan portfolios at State-owned banks, and China's listed companies are perceived to suffer from undue influence and a lack of disclosure, Doebele said while hosting a panel discussion on China's banking and capital market yesterday.

           
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