Mr. Bruce Murray, Resident Representative of Asian Development Bank in China, described ADB's cooperation with China so far as being very happy and put forward suggestions for China's reform on its financial sector in an interview with the People's Daily Overseas Edition.

Mr. Murray is responsible for the management of 13.5 billion USD investment in China and preparation of the scheme for the 1 billion worth of annual loans to China. He illustrated how ADB justifies its loans with a feasibility study involving economic, technical, financial, environmental and social issues.

Loans extended by ADB to China mostly go to roads and railways construction, water treatment, energy and agriculture with a term of 20 years normally at a favorable rate. The projects are expected to improve the living standard of local people. Mr. Murray has found China has very outstanding engineers. He mentioned the Yangpu Bridge master plan designed by Chinese engineers which was found flawless by a multinational experts' team.

Mr. Murray praised China for its perfect repayment record. Most ADB funded projects in China have generated cash flow as scheduled which has made repayment as promised possible. A very small fraction of the items, 5 percent, ended up with repayment settlement by the Chinese government which acted as the warrantor.

A careful assessment is always made by ADB on the impact of a proposed project on the environment. As Mr. Murray stressed, ADB pays much attention to the protection of the rights of local residents under the legal framework who have to relocate to spare land for projects.

ADB's insistence on bidding invitation for every project guarantees the transparency. Contractors, instead of the government, are payees of fund upon the government's confirmation of the fulfillment of the contract by the contractor.

Site supervision is conducted by representatives of ADB besides Chinese engineers. The National Audit Office of China checks up these projects every year which are also under the close watch of accountants' office commissioned by ADB.

When it comes to the reform of the financial sector, Mr. Murray recognizes it as the most difficult point in the transition from the planning economy to market economy, as well as one of the biggest risks hat China is facing now. He made seven suggestions on this issue.

His package includes the disposal of non-performing loans, diversified investors and market-oriented risk management, reinforcement of the financial watchdog, development of the equity and bond market, a push-start to the reform of interest rate liberalization, opening of the capital account after improving domestic institutions, and more flexible exchange rate system at a proper time.

He does not expect an overnight success of the reform. He thinks the right way is to improve the corporate governance by changing the mindset, diversifying the stakes structure, separating banks from the government, and establishing efficient boards of directors.

He said it was a massive task to dispose the NPL. He noticed newly added NPL after the disposal of enormous NPL by four asset management firms. Before that the Chinese government injected capital reserves to two banks (China Construction Bank and Bank of China).

He proposed a broader range in which banks would manoeuver the interest rates according to their risk exposure assessment. He also highlighted the importance of strengthening the legal framework which entitles banks with access to pledges. He stressed it was necessary to set up institution overseeing credit status to make sure defaults would be subject to high costs.

He was glad to see China's progress on beefing up its supervision on the banking sector. he exchanged his ideas about this issue with Mr. Liu Mingkang, Chairman of China Banking Regulatory Commission. But he called for patience toward changes of people's mindset.

He didn't think it necessary to establish an institution like Federal Deposit Insurance Corporation as it does in US. The possible influence of the shutdown of state-owned banks would be so imaginable that this scenario was not in consideration, he said. In his opinion, the problem of China's banking sector lies in developing good customers instead of the liquidity.

He does not see the possibility of foreign banks controlling big Chinese banks. He mentioned his experience of payment of his phone bill with bank cards and remittance through bank transfer within a few seconds to prove the fast changes and improved services of China's banking sector.

China needs small banks which target at niche market and are run efficiently. With their prompt response to the market and various products, they are more attractive than their bigger peers to foreign investors. There are successful stories of this kind in foreign countries, Mr. Murray told the reporter.

By People's Daily Online