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CONFIDENTIAL #3
administrative controls to guide the actions of local governments, enterprises and individuals. Second, at the micro level, the economic reforms will be limited in scope.
if they are not accompanied by reform of the banking
system, as the reforms are intended to involve, amongst other things, the granting of greater autonomy to enterprises in their output and investment decisions. De-centralization of the economic system is not compatible
with a banking system in which the state retains complete control of bank credit and deposits. State decisions on
the allocation of funds among enterprises will have to be
replaced, albeit perhaps gradually, by credit assessment
on viability grounds, with the interest rate serving to
reflect the cost of capital. Further, reform of the banking system will result in improved financial intermediation, thereby promoting the mobilization of idle
capital in the private sector.
6.
As a first step towards the development of monetary policy instruments and with a view to improving the efficiency of resource allocation, the banking system
of China has undergone a gradual re-structuring in the past eight years. While the PBOC has retained its
dominant status in China and formally became the central
bank of China on 1 January 1984, a number of separate
specialist banks have been set up or expanded.
7.
The Agricultural Bank of China (ABOC) has been
revived after a long period of inactivity. The Industrial and Commercial Bank of China (ICBOC) has been spun off
from the PBOC to deal with day-to-day commercial banking
functions in the urban areas. The PCBOC, which used to
act only as a fiscal agent for the Ministry of Finance,
took on banking functions in relation to enterprises
engaged in investment.
A new China Investment Bank (CIB)
CONFIDENTIAL #B
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