May 27, 2012 / 2:58 AM / 7 years ago

China to encourage private capital in banking industry

BEIJING (Reuters) - China will give private capital the same entry standards to the banking industry as other capital, state media said on Sunday, as the government makes its hardest push in a decade to court private investors by welcoming them into a handful of sectors.

Private companies would be allowed to buy into banks through private stock placements, new share subscriptions, equity transfers, mergers and acquisitions, the official China Daily said, citing the China Banking Regulatory Commission.

Private investment would also be permitted in trust, financial leasing and auto-financing companies, the report said.

“The banking regulatory branches at different levels cannot set up separate restrictions or additional conditions for private capital to enter the banking sector. They are obliged to improve transparency of the banking market access constantly,” the newspaper cited the regulator as saying.

In order to encourage lending to the private sector, China should let private capital play a bigger role in financial institutions, and encourage private lending companies to become commercial banks, Wu Xiaoling, a former deputy central bank governor, told the China Daily.

“The government has encouraged small lending companies to turn into rural banks,” she said. “But with a minimum shareholding requirement of the main initiator, private investors lack enthusiasm for such things.”

On Friday, the powerful watchdog of China’s state-owned firms said China would allow private investment in state companies when they restructure or sell shares, but gave few details on how that would happen.

However, analysts are skeptical China will follow through on its pledges to cut the role of the state, given that its stranglehold over swathes of the world’s second-largest economy has been unchallenged for years.

Analysts have said deep vested interests often backed by influential politicians are the biggest obstacle dogging privatization efforts.

That said, government ministries may follow the State-owned Asset Supervision and Administration Commission’s lead and voice public support for privatization in coming weeks in response to Premier Wen Jiabao’s instructions to detail plans on how to cut the state’s role in the economy.

Reporting by Ben Blanchard; Editing by Nick Macfie

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