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Friday, 25 January, 2002, 18:50 GMT
China pledges 'cleaner' banks
Bank of China building, Hong Kong
Bank of China has been fined $20m
Two top Chinese officials have defended reforms of China's banking sector after irregular loans at the New York branch of China's biggest commercial bank triggered fines of $20m (14.2m).

International observers fear the scandal could strengthen the stance of those favouring a slower approach to financial services reform when a major government conference meets to draft a five-year agenda for the sector next month.

Relevant departments are continuing to investigate into Comrade Wang's problems

Foreign Ministry official

Regulators in the United States and China each imposed a $10m fine on Bank of China after a joint investigation into cronyism in allocating loans.

But banking analysts remain concerned the scandal could derail Bank of China's plans for a $6bn international listing of its Hong Kong arm later this year.

'Problematic lending'

Wang Xuebing, an ex-president of Bank of China, was suspended earlier this month from his current job as head of another of China's 'big four' banks, the China Construction Bank.

A Foreign Ministry official reiterated on Tuesday that Mr Wang is being held responsible for the loans, though he did not say Mr Wang instigated them.

Mr Wang "was found to have leadership responsibilities... for certain problematic lending cases," said Foreign Ministry spokesman Sun Yuxi.

"Relevant departments are continuing to investigate into Comrade Wang's problems."

Bank of China president Liu Mingkang
Liu Mingkang: 'We have the correct direction'

Meanwhile, the current president of Bank of China has been setting out the bank's clean up at a press conference.

Liu Mingkang stressed a tie-up with a major foreign bank remains a priority.

Bank of China is the lynchpin of efforts to bring market realities into China's 'big four' banks, which are technically bankrupt under the weight of loans to inefficient state-run enterprises.

Last autumn, its Hong Kong arm pulled together 12 local banks into one big bank to improve efficiency as part of an experiment whose lessons officials hope to import to the rest of the country.

In five to seven years Chinese financial institutions...will be much cleaner

Liu Mingkang

That new bank "is seeking a strategic partner to work together and I think that will be a big step forward," said Mr Liu.

UK-based bank Barclays has confirmed it has held talks with Bank of China about taking a stake.

'Correct direction'

"In five to seven years Chinese financial institutions, including Bank of China, will be much cleaner," Mr Liu stressed.

"We will have a lot of problems on the way because of the historical burden coming from a planned economy....but we have the correct direction."

Bank of China took the lead among Chinese banks to disclose non-performing loans according to international best practice. practice two years ago, he said.

Foreign investors may be less reassured that it was advised by Arthur Andersen - the audit firm being investigated over the collapse of US firm Enron, the biggest corporate failure ever.

The 'big four' control more than 70% of China's banking assets.

They have three years to get ready to compete with foreign banks for yuan-denominated business, as part of China's far-reaching market access deal to join the World Trade Organisation.

Big decisions soon

The Central Financial Work Conference will meet for three days from 5 February, for only the second time since the 1998 Asian financial crisis.

The meeting, which will be closely-scrutinised, was scheduled for last October but has been postponed twice.

"There will definitely be concrete policy decisions relating to all aspects of the domestic financial sector," said Yiping Huang of Salomon Smith Barney in Hong Kong.

See also:

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China firms 'fake' profits
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Bank giant boosts China WTO drive
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China: an economic super power?
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