CHINA BANKING AND FINANCE NEWSLETTER
Vol. 4, No. 6 - May 15, 2003
TOPICS THIS ISSUE:
- Reform of Financing In Rural Areas
- Groupama To Introduce Agricultural Insurance
- ICBC maintains growth
- Beijing Settles First SARS Insurance Claim
- China's Banking Regulator Body Officially Launched
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Reform of Financing In Rural Areas
Efforts to reconstruct the much-weakened financial system in China's vast rural areas are poised to pick up speed in the coming months.
The China Banking Regulatory Commission has given top priority to rebuilding the rural financial system, which has become weaker in recent years despite efforts to reform it.
The commission was set up last month and took over some regulatory functions of the central People's Bank of China.
In a bid to sharpen their competitiveness in the face of fierce foreign competition, China's four State-owned commercial banks -- the Agricultural Bank of China, Bank of China, China Construction Bank, and Industrial and Commercial Bank of China -- have withdrawn from most counties and rural areas to refocus on more profitable operations in the big cities. This has left the burden of financing agricultural needs with rural credit co-operatives.
But the rural credit co-operatives are already in dire straits. Their non-performing loans stood at 515 billion yuan (US$62 billion) at the end of last year, a staggering 37 per cent of their total outstanding loans.
The central government has taken steps to remodel such co-operatives, reorganizing them into bigger co-operatives or into banks. The most recent step was the establishment in March of the first rural co-operative bank in East China's Zhejiang Province, a combination of a joint-stock structure and co-operative mechanisms.
Industrial policies are to be revised to enable the structural upgrading of the rural economy and preferential tax policies are to be formulated for farmers and businesses to support innovative agricultural technologies.
Economists have also called for tax incentives to redirect commercial loans to rural areas, further reform of credit co-operatives to enable them to play a stronger role in supporting farmers and agriculture, as well as a lower interest rate on redeposited funds from postal savings branches.
Source: China Daily
Groupama To Introduce Agricultural Insurance
France-based Groupama - one of the country's largest insurance companies - confirmed it filed documents in January to introduce its agricultural insurance business to China, a move that will make it the first foreign insurer to develop agriculture insurance services in China.
The move also makes it one of the few foreign insurers bidding for a license to set up business in western China.
US-based insurance giant Liberty Mutual has also applied to introduce insurance businesses in Chongqing, a business hub in Southwest China neighbouring Sichuan Province.
According to China's commitment to the World Trade Organization (WTO), the nation will allow foreign insurers to develop business in a number of cities and regions, including Chongqing, at the end of this year.
Once it has secured approval from administrators, the Groupama business will be a wholly owned branch offering property insurance in Sichuan, a province in Southwest China.
Agriculture insurance businesses were launched in the early 1980s in China by the People's Insurance Company of China (PICC). But it was stymied by slow progress owing to a lack of sufficient expertise and sound policy support.
With more than 700 million people in rural areas, developing China's agriculture sectors is crucial to China's drive to develop a well-off society.
However, China's agriculture insurance business is witnessing sagging growth and is mired by a lack of policy expertise and incentives.
Only two insurance companies - PICC and Xinjiang-based China United Insurance Co (CUI) - are still offering agriculture insurance services in China. But they are both suffering from lackluster business.
Groupama said the new branch would offer expertise honed on the French market to the China market.
In partnership with Chinese firms, the company has just completed an agriculture insurance research project covering more than 200 farmers in three major provinces of China. The findings revealed great demand for insurance services among farmers to help them eliminate risks in agricultural production, property, healthcare and daily life.
As one of the largest insurance companies in France, Groupama had 65 per cent of the country's agriculture insurance business last year. However, continuous shrinkage of its agriculture insurance business led it to transform itself into an insurer offering comprehensive insurance services in the mid 1990s.
The company has even launched a banking unit in February to offer its customers commercial banking services to limit impacts of fierce competition from its rivals.
Source: China Business Weekly
ICBC maintains growth
Loans and deposits are pushing forward and continuing their growth in the face of the deadly severe acute respiratory syndrome (SARS).
Despite earlier reports pointing to a broad dip in the growth of the savings deposits of banks in Beijing - the city hardest hit by the flu-like epidemic - the Industrial and Commercial Bank of China (ICBC) reported both its new loans and deposits for the first four months were, on a year-on-year basis, more than double.
China's largest State-owned commercial bank rolled out another 186.7 billion yuan (US$22.5 billion) in the January to April period, tripling from one year earlier, while new deposits doubled year on year to 255.5 billion yuan (US$30.8 billion).
Profits, partly as a result, surged by 74 per cent to 15 billion yuan (US$1.8 billion).
And its non-performing loan ratio fell by a further 1.33 percentage points to 21.21 per cent at the end of April.
Chinese commercial banks reported a broad surge in loans and deposits in the first quarter, which analysts say was largely a result of a rebound in economic activity and would further spur gains in the fast-growing economy.
In a move to focus more on businesses that produce or sell medicine and equipment used to battle against SARS, the ICBC lent a much heavier than average 4.9 billion yuan (US$590 million) in loans, in April alone, to the sector.
The central bank last month urged commercial banks to step up financial support for those companies as part of a nationwide push against the epidemic.
The ICBC said its online banking transactions more than tripled in April, when panic started to spread quickly on the street, to 1.3 trillion yuan (US$157 billion).
It now has 42,400 corporate online clients - a rise of 20 per cent from the end of last year.
Turnover by way of telephone also surged, which it said was a result of marketing efforts trying to persuade clients to avoid over-the-counter contact.
Source: China Daily
Beijing Settles First SARS Insurance Claim
Ping An Insurance Company, Beijing Branch, paid out on an insurance claim of 50,000 yuan on April 22 for a client who had died of SARS.
This is the first compensation case relating to SARS handled by a Beijing insurance company.
However, around the country, more than 70 SARS sufferers or their relatives have already received insurance compensation of more than 400,000 yuan. In south China's Guangdong province, 300,000 yuan has been paid out in 56 SARS cases.
China Insurance Regulatory Commission (CIRC) Beijing Office issued a notice on April 17 requiring all insurance companies to deal with cases relating to SARS promptly, practically and effectively and to defend the benefits of SARS suffers and their relatives. No reason would be acceptable to refuse or delay compensation.
The notice also said that any insurance companies found attempting to evade their responsibilities in cases of SARS compensation would be punished severely.
Two principal existing insurance policies are related to SARS: life and health insurance. But eight insurance companies have already developed special insurance policies focusing on SARS which have been approved by the CIRC.
Source: Beijing Today
China's Banking Regulator Body Officially Launched
China's new banking commission officially has started functioning, setting out on a mission to reform the country's banks ridden with bad loans and to stave off banking risks.
The timing of the official launch of the China Banking Regulatory Commission (CBRC) was largely expected, but it was still unclear how differently the new commission would approach its designated role of regulating and supervising China's banks and other deposit-taking financial institutions.
A plenary session of the National People's Congress last month passed the proposal to set up a separate organization to take over the central People's Bank of China's (PBOC) work of supervising banks.
A further Congress decision gave that regulatory role to the new commission, as legislators work to revise China's Central Bank Law, which stipulates that the central bank is to regulate banks.
The paramount goal of the landmark reform is to improve the efficiency of bank supervision and the central bank's monetary policy making. Analysts said the central bank's playing of the two roles had eroded the efficiency of both.
The commission has vowed to implement long-term planning and ensure "some innovation'' in the areas of regulatory methodology, systems and technologies to modernize financial supervision and make it more professional.
The new body has also pledged to establish co-ordination mechanisms with the insurance and securities regulatory authorities to ensure China's financial security.
The 15-department banking commission said its major responsibilities include "formulating supervisory rules and regulations for banking institutions, (and) authorizing the establishment, changes, termination, branching out and business scope of banking institutions.''
Regional branches of the commission are being set up. Analysts predict it could cost tens of billions of yuan (billions of US dollars) to set up branches for the ministerial-level commission in some 320 cities where the central bank has an office, due to expenditure on office buildings, personnel and equipment.
Source: Peoples Daily
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