Can Wen Jiaobao Break the Bank Monopoly?

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After the Chinese Communist Party’s (CCP) two sessions,
Premier Wen Jiabao visited Guangxi, Fujian and other places.
During his visit, a few business owners reported finance
Wen said, “”State-owned banks are profiting too easily.
Why? Because only a few major banks that monopolize
finances can loan money,
and it’s very difficult to borrow money elsewhere.
The fundamental solution to private financing
is to break up the state-owned bank monopoly.”
However, scholars believe that it will be impossible
for the CCP to lose the monopoly of China’s financing, and even less chance of breaking it up.

On April 1 through 3, Premier Wen visited Guangxi,
Fujian, and other places.
Over three days, he went to three companies in Fujian
to find out their economic and operational situation.
Three meetings were held with the three companies.

In the meeting, the chairman of Fujian Peak Group said
that at present, one problem has existed within the companies.
That is, insufficient domestic demand results in increasing stock.
Another is rising costs resulting in the growth of exportation.
He suggested reducing the bank deposit reserve ratio
in order to ease monetary policy.

Economist Jian Tianlun said that China’s entire banking
system is monopolized by four major state-owned banks.
Bank profits mainly come from the interest differential
between deposits and loans.
However, China’s interest rates are prescribed by policy,
and banks have limited ability to float the rates.
Thus, four major state-owned banks that monopolize
the banking industry also monopolize the profits.

Jian Tianlun,”In China, the annual deposit rate
is 3.5%, while the lending rate for 1-5 years is 6.5%.
So the spread is fixed at about 3 percentage points.

In 2011, China’s banking industry profits were over
one trillion Yuan, of which over 70% is from the interest spread.
The four state-owned banks earned even more
than 85% from the spread.”

In the meeting, a chairman from a small loan company said
that small to medium sized companies’ financing difficulty
is reflected in the arrival of funds not matching
the company’s requirement time.
Very often, when a business opportunity arrives, a business
needs to borrow money, but the loan is not transferred on time.
When the loan arrives, the deal has already fallen through.

This issue is a long-term disturbance to the small to medium
sized companies.

Xie Tian, a Business Professor at USC Aiken, said China’s
financing industry is monopolized by the state-owned banks.
It suppresses the development of foreign and private banks.

Thus, small to medium sized companies, individuals,
and citizens lose their interests. They can’t get good banking services.

Xie Tian, “In China, a bank monopoly is actually under
the rule of the CCP.
In fact, state-owned banks control China, only allowing
limited foreign banks and services to exist.
Wen Jiaobao now also admits that banks too easily
generate profit.”

In the meeting, Wen mentioned in order to break up
the monopoly, the central regime has agreed on an ideology.
Xie Tian believes it is almost impossible to implement.

Xie Tian, “Do you expect the CCP will implement it?
I think it is impossible.
You said the CCP’s central regime agreed to break up the
banking monopoly, how will this be achieved?
Will they really allow private and free market
competition to exist? I believe it is impossible.
Once the CCP abandons the monopoly, it means the CCP’s
rule will collapse.”

Xie Tian also said whether the CCP maintains power
is very dependent on money and corruption.
Without money’s support, the CCP cannot even last
one more day.