China will press ahead with its opening-up commitments and relax restrictions on foreign investors in the financial services sector, the People's Bank of China said yesterday.

 

It "will, in a modest manner, allow foreign investors to take more stakes in the financial services sector and relax the restrictions on their business scope and origin," the central bank said in its second China Financial Stability Report.

 

The report comes only a month before the country fully opens up its banking sector to foreign competition in line with its World Trade Organization (WTO) commitments.

 

It would also "determinedly push forward the reform of state-owned commercial banks to improve their ownership structure, corporate governance and internal control mechanisms, provided that the State remains (their) absolute majority shareholder," the central bank said.

 

It also vowed yesterday to beef up its control on major financial institutions to safeguard national financial security.

 

According to the report, China has made breakthroughs in financial reform and dealt well with financial risks, with the overall financial system showing signs of stability last year.

 

"The rapid yet stable national economy has laid a sound foundation for achieving financial stability," the central bank said.

 

But it warned that international imbalances and swings in oil and other resource prices could have an impact on the country's financial stability.

 

Further, intensifying competition and the potential risks that could arise from financial innovation might also pose risks to China's financial stability.

 

Direct financing is still developing at a sluggish pace in the country as enterprises tend to rely heavily on bank loans. This "is concentrating on banks some of the risks that should have been shouldered by financial markets," the central bank said.

 

This financial structure is detrimental to the operations of banks and to the prevention of systematic financial risks, it said.

 

The central bank added that it would be accelerating the establishment of a deposit insurance mechanism.

 

(China Daily October 31, 2006)