China says WTO deadline on banking to be met, no more bailouts

Updated at 1.55pm:
China will open up its struggling banking sector on schedule next year, the nation's top bank regulator said on Monday, as he warned the government would no longer inject fresh capital into unprofitable banks.

Liu Mingkang, head of the China Banking Regulatory Commission (CBRC), said China would keep its promise to open up its banking sector to foreign competition by December next year.

The promise was made as part of China's 2001 accession to the World Trade Organisation.

"With the grace period provided by China's WTO agreement approaching the end, the CBRC has, with the fostering of a strategic global vision, been actively pushing forward the opening up of the Chinese banking sector," Mr Liu said.

He further said the state would end capital injections into ailing banks, a practice once used to ready them for initial public offerings and make them more attractive to foreign investors.

"The government will no longer pay for the losses made by commercial banks," he said.

China's ongoing banking reforms are aimed at making the sector commercially competitive while freeing huge state-run banks from the policy constraints that have resulted in a mountain of non-performing loans even as the economy has boomed.

The CRBC's qualified foreign institutional investor programme would remain the preferred method of bringing Western banking expertise and capital into China's banking sector and allowing Chinese banks to survive in a global climate, Mr Liu said.

The programme may "not only provide an institutional basis to eliminate the moral hazard arising from commercial banks' ceaseless expectations for government bailouts but also rules out the possibility of government re-injection of huge capital", a CBRC statement said.