China to strengthen control of financial institutions

Oct 30 | Updated: Oct 31 2006, 05:30am hrs
China will strengthen control of its major financial institutions to ensure stability amid restructuring of the nations $5.2 trillion banking industry ahead of full deregulation in December, the central bank said.

We will tighten control of major financial institutions and ensure the nations financial stability, the Peoples Bank of China said in a statement on its website on Monday.

China has spent $60 billion to bail out the countrys three biggest state-owned banks and lure foreign investors ahead of public share sales. Bank of America Corp, UBS AG and other financial firms spent more than $18 billion in the past two years to expand in China, which last year passed the UK as the worlds fourth-largest economy.

The government will accelerate the restructuring of Agricultural Bank of China and Agricultural Development Bank of China as the it tries to boost the rural economy, Mondays statement said. China will also speed up establishment of a deposit insurance system to protect household savings, investors and insurance policyholders.

China will further open its financial services industry and may raise the cap on foreign ownership in the industry, the statement said.

Foreign firms are allowed to own a maximum 25% of a local bank, with a single investor capped at 20%.

Chinas banks had a combined 257.3 billion yuan ($32.7 billion) of profit in 2005, up 22% from a year earlier, the Peoples Bank of China said.

A four-year investment boom has powered Chinas annual economic expansion of 10%, double the global average, fueling demand for loans and financial services such as asset management and mortgages.

Bloomberg