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Jamil Anderlini

Agencies expected to flesh out premier's reform initiatives with specific proposals

Anyone watching the official outcome of the National Finance Working Conference over the weekend could be excused for thinking it had concluded without any concrete results.

Premier Wen Jiabao's speech to the conference, disseminated through the official state media, came across as a vague exhortation to reform the financial system in order to facilitate the construction of a socialist harmonious society.

But this meeting, held just twice before in 1997 and 2002, marked the culmination of more than six months of intense interagency negotiations and horse-trading and behind the scenes a host of major policy initiatives was decided by the country's paramount leaders.

'In China, meetings at this level are intended to set the tone and direction and arbitrate disputes between various agencies and it will now be up to those agencies to work out the detailed policies,' said  HSBC economist Qu Hongbin.

One of the most significant decisions made at the meeting was the transfer of control over China's anaemic corporate bond market from the conservative central planning agency, the National Development and Reform Commission (NDRC), to the more market-oriented China Securities Regulatory Commission (CSRC).

This transfer almost certainly will happen in the first half of this year and is expected to lead to an explosion in bond issuance and trading,  a source who attended the  meeting said.

The government will 'speed up development of the bond market, expand enterprise bonds, strongly develop corporate bonds and perfect the bond management system' - that was as specific as Premier Wen would get on the issue.

But the statement has huge implications for the corporate bond market, which saw just 45 companies issue a combined 101.5 billion yuan last year. It was a record high, up 55 per cent over the year before but still a negligible amount  compared with other forms of financing and markets in other countries, especially in the United States where bonds account for the bulk of corporate finance.

One reason it is so small is because the NDRC sets annual quotas for the overall market and then approves bond issues on a case-by-case basis in a non-transparent process that usually takes between a year and 18 months.

'Enterprise bonds', as referred to by the Premier, are defined in China as infrastructure bonds or large project finance bonds issued by large state-owned companies and the authority to approve these will remain with the NDRC, sources said. 'Corporate bonds' are defined as  fixed-income instruments with maturities of more than a year issued by companies that have a corporate or shareholding structure, including all listed companies, and approval for these will be granted by the CSRC which will set basic requirements for the market but will not impose quotas.

Regulatory oversight for financial bonds issued by banks will remain with the central bank.

In one widely anticipated move, the China Development Bank was singled out to lead the three policy banks - besides itself, the Export and Import Bank of China and the Agricultural Development Bank of China - in becoming more commercial in their operations.

But a number of other expected moves,   including the establishment of a deposit insurance system for the banking sector  and the overhaul of Central Huijin, the government's financial investment vehicle, were not even mentioned in the  speech.

One  explanation is that the speech was in large part aimed not at the general public but at the various financial regulatory authorities which will interpret  the Premier's comments as support for one rival policy initiative or another.

The statements he did make had far more significance than  what appeared on the surface.

In calling for the smooth reform of Agricultural Bank of China,  the last of the country's large state-owned commercial banks to embark on a process that has led others  such as Bank of China and Industrial and Commercial Bank of China to sell shares in Hong Kong and Shanghai, the Premier was 'clearly showing that the government has decided on a specific plan' on the matter, Mr Qu said.

And by mentioning the need to 'actively explore and expand new uses for the country's foreign exchange reserves' Premier Wen was indicating  that the top leadership had approved the establishment of a new investment agency dedicated to improving returns on China's  reserves, analysts said.

Now it will be left to the ministries and agencies to work out the details of five years' worth of financial policy direction.



Wen sets broad policy directions for finance sector