Banking on the market

As Minsheng’s biggest shareholder, with 9.99 per cent, Mr Liu may see the value of his stake climb to more than Rmb 1.6 bn after tomorrow’s listing. This, coupled with his assets in another listed private company, the Sichuan New Hope feed grain company, will make him a contender for the title of China’s richest man. For Jing Shuping, Minsheng’s 81-year-old chairman, the listing is a vindication of a life’s work that began when he was an entrepreneur selling chemicals and cigarettes in pre-revolutionary Shanghai.

Branded a “reactionary capitalist” during the Cultural Revolution and banished to a remote farm, Mr Jing was later rehabilitated and became instrumental in the early 1990s in persuading Zhu Rongji — then vice-premier, now premier — to grant approval for the country’s first private bank.

Such is the human drama behind China’s transformation from a planned economy 20 years ago to a half-reformed, free market system. But the significance of Minsheng’s listing reaches far beyond the lives of those who created the bank.

Minsheng is at the forefront of Beijing’s efforts to bring discipline to a state banking system that has been the conduit for one of the world’s most grotesque misallocations of credit.

The “big four” state banks — which handle about 80 per cent of China’s banking assets — have for years channelled their lending towards a state industrial sector that swallows about two-thirds of the country’s credit resources but contributes only a third of gross domestic product, according to government economists. Minsheng is meant as an example to them. Unlike the state banks, which are influenced by political considerations, corruptionand local allegiances, Minsheng grants loans on the basis of commercial criteria, says Dong Wenbiao, the bank’s president.

The efficiencies of such an approach are evident in Minsheng’s figures. Its asset base has grown 16 fold since it was founded in 1996 and the bank made profits of more than $50m in the first half of this year, up 19 per cent from the same period of 1999. The big four state banks, by contrast, are barely profitable. Non-performing loans at Minsheng amount to less than 5 per cent of assets, Mr Dong says. This compares with about 25 per cent among the “big four” banks, officials say…

Similar reforms are underway at the Industrial and Commercial Bank of China, where credit is increasingly diverted away from unwieldy state-owned enterprises and into mortgages, consumer loans and foritable companies. “Only 0.4 per cent of consumer loans go bad,” says Jiang Jianqing, the bank’s chairman…

Excerpted from `China’s public show of capitalism’, Financial Times, December 18