TNAG-2792-FCO40-4031-Relations-between-Hong-Kong-and-China-1993 — Page 107

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CONFIDENTIAL

13

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to

compete

for

foreign

currency deposits

letters of credit.

domestically and to open

A

number of other Chinese financial institutions

were also authorised to conduct foreign currency transactions in recent years (3).

22.

Notwithstanding

these developments,

some

important shortcomings remain in China's banking system, including the following:

(a) Under the

(b)

(c)

existing institutional set-up, PBOC's

operations are subject to heavy influence from other parts of government at both the central and the provincial levels. Unless some fundamental

changes are made to the existing banking system, in particular giving PBOC a much greater policy authority in implementing measures in line with

the overall economic and financial situation,

PBOC will not be able to function effectively as

an autonomous central banking institution.

The bond

an early

financial

and money markets in China are still in stage of development. Lacking adequate instruments at its disposal and with

the slow progress in reforms on other fronts

(e.g. reform on state-owned enterprises), it is

difficult for PBOC to implement monetary policy

effectively.

The state specialised banks are entrenched with a

mixed portfolio of commercial and policy loans.

(3)

These include the Shenzhen Development Bank and Guangdong Development Bank.

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