Study On The Transition Path Of Policy-based Banks In China

Policy-based finance refers to a financial activity which is based on national credit, aims to maximize social benefits, and demonstrates the intent of government by supplying financing to given domains, industries, regions and projects under the support of national government. It assumes the responsibility to allocate financial resources of a country together with national finance and commerce financial systems. Simultaneously, a country’s policy-based finance tends to change with the degree and development of its marketization as well as the progress of its financial system. And it can be directly reflected from its changing relation with commercial finance and boundary of financial policy. Furthermore, benefits and costs to arrange policy-based finance are also changing from the angle of government. When costs to arrange policy-based finance are more than its benefits, government has motivation to promote system transition, and reduce costs of system transition as well as explore potential profits brought by new system through reasonable channels.As China’s marketing economy constantly develops and business scope covered by marketing system continuously expands, original policy-related business in policy banks continually shrinks, and cost-benefit ratio as a system arrangement of policy banks has changed. Within more than ten years, operation system, assets quality, competitiveness and other aspects of three big policy banks in China have constantly changed and generated inside cumulative effects in their respective operation. With trade, investment, finance and other economic activities keep deepening their globalized trend, government as a self-stimulated action entity, its objective functions have also changed under the background of new ear. Most of the three policy banks’original business has been replaced by commercial system, and policy-related business constantly shrinks. Therefore, conditions are already mature for China Development Bank to be transformed to commercial bank directly. Policies like Construction of "Agriculture, Farmer, and Countryside", support for export and import trade, and strategy of "going global" cause Agriculture Bank of China and The Export-Import Bank of China necessarily to deal with policy-related business for a long time in the future. But a renewed position of business range is required for those banks, and meanwhile reforms of interior system and mechanism should be accelerated to create conditions for all-around commercialization.From the angle of government, although policy bank’s transition to commercial bank may weaken government’s financial control, the benefits would be bigger. First, government would not be the only investor and its exclusive responsibility for the loss of the bank would gradually fade away. Besides, it would lessen the low efficiency of government in allocating resources for blurring boundary between policy banks and commercial banks as well as avoid marketing price system distortion caused by policy banks’competition with commercial banks since they enjoy policy backup. Therefore, to promote policy banks’transition to commercial banks is a rational choice for the government, and that would make it reap more benefits than pay costs.Institution structure of policy banks would change after they transform to commercial bank:first, national credit would be withdrawn and replaced by market credit and institution credit; second, there would be a diversification of property right structure and government background would gradually fade out; third, business scope would be expanded; fourth, channel of raising fund would be marketlized; fifth, corporate governance would be standard; and finally, its operation would be commercialized. Accordingly, the transition of policy banks would produce profound influence on themselves as well as each market interest party. Take China Development Bank for an example, lack of long-term, large amount and collective credit operation pattern supported by government have brought a challenge to the steadiness of the bank’s operation currently, and change of credit structure has challenged the fund raising pattern of the bank. Then, its institution competition advantage built upon soft loan would not exist any more. In terms of financial bond investors to the bank, if there is no differentiation between new and old systems, change of the bank’s credit rate would cause serious loss to investors of the stock financial bonds issued by the bank, and affect capital adequacy ratio negatively. If the bank connects with commercial bank’s supervision frame instantly, investors cannot fully carry on stocks and increment financial bonds issued by China Development bank for both insurance company and commercial bank are restricted by ownership centralization. That would make it hard for investors to allocate capital and also put up difficulties to the bank to issue bond.In order to reduce transition costs, with the principle to favorably optimize allocation of financial resources, fulfill the peaceful transition and sustainable development of policy bank, and lessen negative affect on relevant interest parties, taking constraints that the banks would face in transition into account as well as country’s emphasis on stability as "The First Act Group", on the base of learning from foreign countries’successful experience in policy banks transition, the writer believes gradual transition mode is a suitable choice for policy banks to change their system with low costs. And the banks could achieve their transition with following paths:first, to set transition period, and provide more information for channel of the next transition through experiments; second, to withdraw government fund step by step, and gradually foster commercial credit and market competitiveness; third, to differentiate new and old systems and remain the continuity of credit and liability through dual-path operation; fourth, to implement increment reform, and expand business scope and financing channels; fifth, to reconstruct IPO (initial public offering), and improve corporate governance structure; finally, to reform supervision framework similar to commercial banks gradually, and notice differentiation at the same time.