(NEW YORK) MintPress — Chinese Premier Wen Jiabao’s latest comments about that country’s economy could have come straight from the campaign trail in the United States.
According to China National Radio, Wen, addressing a group of business people on Wednesday, said: “Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital.”
“That’s why right now, as we’re dealing with the issue of getting private capital into the finance sector, essentially, that means we have to break up their monopoly,” he added.
Stunning words from the leader of the world’s largest communist country, as well as its second biggest economy. Especially coming on the heels of remarks Wen made at a news conference last month, when he called for limits on the pay of top earners, including bankers.
Then again, he has been dubbed “the people’s premier” by both the domestic and foreign media, and is known to have a populist approach to policy. Perhaps more so than self-proclaimed populist leaders in this country?
Occupy Jinrongjie?
While China’s masses may not be taking to the streets, or even Beijing’s Financial Street, Jinrongjie, public anger at the banks’ payments of low interest rates on deposits and indiscriminate, high fees has been growing.
Especially as the country’s leading banks recently posted record profits, showing double digit increases. China’s biggest lender, Industrial and Commercial Bank of China, earned $33.1 billion in 2011, making it one of the world’s most profitable companies. Other major banks —Bank of China, China Construction Bank and Agricultural Bank of China— reported similar windfalls.
This comes amid signs of a slowdown in the Chinese economy — it grew 10.4 percent in 2010, 9.2 percent last year and is expected to decline even further this year— and a shortage of credit. The so-called “big four,” whose top executives are appointed by the Communist Party’s Organization Department, account for about 40 percent of China’s total loans. They tend to reserve most of their lending for other state-owned enterprises.
At the same time, the decks are stacked against ordinary savers. Deposit rates are capped by the government at about 3 percentage points below lending rates, giving the banks big margins that account for two-thirds of their profits. And since private groups are not allowed to open banks, the state-owned lenders hold all the cards.
People power
Although they can’t vote their leaders in and out of power, the Chinese can move their money. And experts on the country’s economy say people are in fact beginning to withdraw their cash and deposit it outside traditional bank accounts in a growing array of “wealth management products” that offer higher deposit rates, forcing state-owned banks to compete.
Meanwhile, the World Bank has added to the calls for reform in a new report, China 2030, released in February. It recommends that Beijing separate “ownership from management” of state-owned enterprises and implement modern corporate governance practices, including the appointment of senior management, public financial disclosures and external auditing.
Although Wen’s call for an overhaul of the banking system may face opposition from other party leaders, he could implement more modest measures. Those, according to Beijing-based lawyer and blogger Stan Abrams, would include encouraging the development of local banks and deepening credit markets to give borrowers choices other than traditional banks.
“Minor reforms in the area of banking fees are nowhere as significant as overhauling the way that capital is allocated in China,” writes Abrams, “but it would affect the bottom line of the banks. Given their political power in this country, that would still be big news.
China’s financial giants may be “Too Big to Fail” but not too big to become more user friendly. Compare that to the latest charges against scandal-plagued Bank of America (BOFA). Despite Washington’s attempted reform of this country’s financial industry, some of the top banks still appear to still be up to the old tricks.
Take the case of John McDevitt, a US Army reservist from Clayville, N.Y., who told ABC News on Wednesday that BOFA has not helped him recover $25,243.71 in fraudulent charges rung up on his debit card almost two years ago while he was on leave from service in Afghanistan.
“I was robbed of money,” he said. “I just think the law should be changed, whether it’s debit or credit.”