It's your move, Mr Zhu

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It's your move, Mr Zhu

International investors hoping for rapid changes to China's financial system will be disappointed. The quick fix is not Beijing's style. Nevertheless, the slow-but-sure approach is producing encouraging results, as Sophie Roell reports.

The man who gets things done


If China has a blueprint for banking reforms it is that there should be no blueprint. The experimental approach which has characterized economic reform for almost 20 years continues to be the preferred way forward for Beijing's planners.

"The Chinese have always religiously stayed away from overall plans and timetables," says Pieter Bottelier, chief of mission at the World Bank in Beijing. "They have a general direction in mind and then leave the details to the market situation and needs." As Deng Xiaoping, China's ailing patriarch, has put it: one should "cross the river by feeling the stones".

Such caution has the advantage of not causing sudden shocks to the financial system. Operating on a low capital base, China's state-owned banks, which still dominate the financial sector, are heavily dependent on the continuing confidence of the nation's household savers.

In ordinary circumstances, depositors might have looked elsewhere for returns. Interest rates generally have been negative in real terms and Chinese banks are not noted for their efficient service or impeccable balance-sheets. An evaluation of their "intrinsic safety and soundness" by rating agency Moody's resulted in a dismal E+ grade being allocated to three out of four of the main state-owned banks.


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