Study Of The Structural Reform Of State-owned Commercial Banks

Over the past 20 years, great change has taken place in most sectors of China economy, excluding banking industry, with China's entry into World Trade Organization (WTO), reforming the banking industry, especially the four state-owned commercial banks becomes an urgent task the government is ambitiously embarking on but not fruitfully so far. Where should the big four go? The theories on corporate governance provide with us a very good framework to discuss this problem.Generally speaking, corporate governance includes internal mechanism and external mechanism, the former emphasizes structure of property right, incentive mechanism and balance mechanism, while the latter focuses on regulatory environment and competition condition.We use a multi-task principal-agent model to explain where low efficiency and non-performancing loans come, we find that the government, both as a manager of the state and an owner of the banks, inevitable give the banks two conflicting task: stabilizing the state and maximizing banks' profit. Given the incentive mechanism, that is, income from control right accounts for a much larger part of the banker' s salary than contractual income, banks can do nothing but what the government wants them to do, and the problem are thus generated.Referring to the theories and practice of corporate governance, in the light of the reality of China economy and banking industry, we concluded that in order to provide sufficient financial intermediation for the sustaining long-run growth of China economy, some measures are strongly recommended. First of all, a more balanced organizational structure should be set up immediately, in which board of directors, managers and supervisory board separate and responsible for their own actions. And then, the government should reduce its share in the banks' capital gradually, first by introducing institutional investors, then by listing to meet the capital adequacy requirement. Finally, the goal of reform should be to turn the banks into share holding companies, in which the state holds a minority share. In each step, reforming the incentive mechanism is of great importance.