China to start pilot for four privately owned banks

BEIJING (REUTERS) - China will launch a pilot test for privately owned banks in its more prosperous regions of Tianjin, Shanghai, Zhejiang and Guangdong, the country's bank regulator Xiao Gang said on Tuesday.

The pilot, which was approved by China's government in January, is the first tentative step by the country to open its hitherto closely guarded banking sector to private investors.

An article appearing in the official party mouthpiece People's Daily on Tuesday named companies that have been approved to participate in the pilot project, including e-commerce giants Alibaba and Tencent - both of which have been competing to market high-yielding wealth management products online.

A total of 10 companies will participate in the pilot, the report said, adding that five privately owned banks will be approved as the first batch. It did not give names of these banks.

Economists have long decried the tendency of China's state-dominated banking system to grant loans primarily to large state-owned firms, even as SMEs account for 60 per cent of gross domestic product and around 75 per cent of new jobs.

But banks and officials warn that even if regulators move aggressively to permit new, privately owned banks, it won't provide an immediate solution to SME financing.