Analysis On The Effect Of Foreign Financial Institutions Equity Participating Into Chinese-funded Banks

Recently the government in China has carried out many resolute reforms to thefields of commercial banks, and has also taken a series of correspondent measures, inwhich the most important action is attracting foreign financial institutions equityparticipating into Chinese-funded banks. However, there are different views on whatthe foreign financial institutions equtiy participating could bring to the Chinese-fundedbanks, and this is also the core problem of my paper.Firstly, this paper summarizes the relevant policies of attracting foreign financialinstitutions equity participating into Chinese-funded banks in China and brieflyreiviews the general status, characters of this process. Since the restrictions on foreignfinancial institutions equity participating into Chinese-funded banks were eliminated in2003, the pace of foreign financial institutions equity participating into Chinesefundedbanks had accelerated and also there are many new features.Secondly, this paper studies the positive effects of attracting foreign financialinstitutions equity participating into Chinese-funded banks . There are a great deal ofquestions in Chinese-funded banks, which couldn't be soluted by themselves in theshort term. So we could attract the foreign financial institutions equity participationand learn from them, they could bring their skills and experiences,which could besummed up as the following aspects.First, it can improve capital quality, whichincludes raising the capital adequacy rate and reducing the rate of NPL. Second, it canperfect corporation administration. Except for the equity structure improvement, themost important effect that the foreign financial institutions bring out is establishing agood board of directors-AGM-board of Censors-management administration structure.Third, it could strengthen the Chinese-funded banks'product innovation ability. For along time, there are many difficulties and obstacles in the product innovation forChinese-funded banks. For example, the public's insensitive to the new products,constraint of Chinese-funded banks's traditional management system, riskmanagement level, computer, telecommunications and network and so on, which theforeign financial institutions could improve excellently. At the same time this sectiondoes a empirical study on SPD bank to prove the above views. The action of attracting foreign financial institutions equity participating intoChinese-funded banks is a two-edged sword, which indeed brings some positiveeffects, and also inevitably brings about many negative impacts, so the followingsection of my paper analyzes the negative impacts from three aspects, First, it mayweaken the contrl power of the Chinese-funded banks for the equity structure change.This is not a threat to the state-funded commercial banks ,but a big problem to littlesized stock commercial banks and city commercial banks. Second, it may form theaffiliated transaction, which lead to management risk and risk transferring. Third, itmay increase the management difficulty for cultural conflict. Foreign financialinstitutions equity participating into Chinese-funded banks just means the capitalhybrid completion, there will be more disputes in the long term future.Finally, according to the analysis of the negative impacts, this section proposescountermeasures and suggestions on how to make use of the foreign financialinstitutions equity participating to promote the development of Chinese-funded banksfrom three aspects. First, we can consider attracting domestic investors, this candisplay a tripartition consisting of state-owned shares, foreign financial institutionsequity and domestic investors equity, which can not only break the dominant stateownedshares, but also prevent dominant foreign shares. Second, we must strengthenfinancial supervision on the Chinese-funded banks which have attract the foreignfinancial institutions equity participation. Establish corresponding laws and regulationsto strengthen the supervision on financial mixed profession mangement; rigorouslysupervise the Chinese-funded banks'offshore finance deal; insist on the mangementprinciple of distinguishing between domestic deal and offshore deal; enhance thebanks'management risk supervision and master their overseas deal. Third, we mustenhance the relationship management of both sides to solute the cultural conflict.Strenghten better communication on both sides, the Chinese-funded banks must treatthe foreign financial institutions with the open and compatible spirit, select someadministrative personnel and excellent staff to study in the foreign financial institutions.Of course, foreign financial institutions'equity participating into Chinese-fundedbanks is one of the effective approaches to the Chinese-funded banks'reform, but wecouldn't believe that foreign financial institutions are everything and they solve allthe problems of Chinese-funded banks. Because of the time and number of financialinstitutions'equity participating into Chinese-funded banks, there is some degree of difficulty to grasp the effects from the whole, so I just take SPD bank for example toanalyze the effect, then my analysises are worth taking with a basketful of salt.However, with the further openninn of Chinese finance and development of foreignfinancial institutions'equity participating into Chinese-funded banks, the research onthe foreign financial institutions'equity participating into Chinese-funded banks willalso deepen, so there will be more new and compellig evidence for analyzing the effectof foreign financial institutions'equity participating into Chinese-funded banks.