The start of the second reform in China

Posted by pengwang530 on April 4, 2012 · Leave a Comment 

WSJ

Chinese Premier Blasts Banks

Chinese Premier Wen Jiabao told a national audience on Tuesday that China’s state-controlled banks are a “monopoly” that must be broken up, in a blunt appeal for a shake-up of the creaky financial system of the world’s No. 2 economy.

In an evening broadcast on state-run China National Radio, Mr. Wen told an audience of business leaders that China’s tightly controlled banking system needs to change. “Let me be frank. Our banks earn profit too easily. Why? Because a small number of large banks have a monopoly,” said Mr. Wen, according to the transcript of the program on the broadcaster’s website. “To break the monopoly, we must allow private capital to flow into the finance sector.”

For decades, China’s economic growth has relied to a large extent on the captive savings of ordinary Chinese moved at cheap rates to state-owned enterprises. The system penalizes savers and rewards borrowers, perpetuating an economic imbalance marked by high rates of investment and suppressed consumption.

China Raises Foreign Investment Quota

The China Securities Regulatory Commission said it raised the total amount foreigners can bring in under what is known as the Qualified Foreign Institutional Investor, or QFII, program to $80 billion. Foreigners previously were approved to bring in a total of only $24.55 billion under the program, which is the only way investors can convert foreign currency to invest in China’s yuan-denominated securities markets. Individual quota amounts under the new $80 billion total will still have to be allocated to investors.

The sudden expansion coincides with a new chief assuming control of the securities regulator. CSRC Chairman Guo Shuqing has rolled out a raft of reforms aimed at making China’s stock markets more efficient and to restore investor confidence. An influx of foreign funds, which hold a little more than 1% of China’s listed stocks by market value as of March 23, according to CSRC data, would hopefully help stabilize China’s volatile markets by introducing investors willing to commit to a stock for the long term. China’s markets are dominated by retail investors, unlike developed markets, where institutional investors dominate, and typically are willing to flip stocks for small gains and follow a herd mentality.

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