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China Approves Trial for Five New Privately Owned Banks

China Banking Regulatory Commission Chairman Shang Fulin
Shang Fulin, chairman of the China Banking Regulatory Commission. Photographer: Tomohiro Ohsumi/Bloomberg

Chinese regulators approved a trial program to establish five privately owned banks as the government seeks to ease restrictions on the state-controlled banking industry.

The China Banking Regulatory Commission will allow the banks to be set up in the cities of Shanghai and Tianjin and in Guangdong and Zhejiang provinces, Chairman Shang Fulin said at a briefing in Beijing today. Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are among 10 companies chosen to participate in the trial, the CBRC said in a statement.

“While private banks are subject to the same regulation as other banks, they should have also their own characteristics, especially focusing on serving small and medium-sized companies,” Shang said.

President Xi Jinping is pushing changes that may be the most sweeping since Deng Xiaoping’s liberalization in 1978 to loosen government controls in everything from energy pricing to banking. The government pledged March 5 to introduce a deposit insurance system and allow banks more freedom to set interest rates this year.

The banking regulator said in January it will allow a batch of three-to-five banks, completely funded by private investment, to operate this year under a trial as part of the country’s financial reform. That could help companies like Alibaba further erode what former Premier Wen Jiabao called the “monopoly” of big lenders.

‘Living Wills’

Private investment accounted for about 11 percent to 12 percent of the Chinese banking industry’s total capital, with the rest controlled by the state, Xinhua News Agency reported on March 5, citing Yang Kaisheng, former president of Industrial & Commercial Bank of China Ltd.

Privately owned banks must have adequate net capital, a specific business strategy and a mechanism to prevent risks from spreading and to protect depositors’ interests, Shang said. They also need “living wills” designed to ensure an orderly wind-down if they go bankrupt, the CBRC chairman said.

The banks will be established one by one after meeting qualifications and the CBRC will prevent them from becoming financing tools for their shareholders, according to Shang. Each lender in the trial needs at least two founders, he said.

Alibaba said in an e-mailed statement that it and China Wanxiang Holding Co. will apply jointly for a license. JuneYao Group, Fosun Group and Chint Electrics Co. are also among the 10 companies allowed to set up banks, the CBRC said today.

China Minsheng Banking Corp., established in January 1996, is the nation’s first privately owned bank.

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