The decision of the Standing committee of the National People's Congress on Revising the Law of the People's Republic of China on Commercial Banks ("The Law") has adopted on Dec 27, 2003, and become effective as of the date of Feb 1, 2004.

In accordance with some modifications made by the decision of the Standing Committee of the National People's Congress on Revising The Law ("The Decision"), the author intends to give some brief introductions and analyses for your reference.

1. The separating and weakening on the functions of supervision and control of The People's Bank of China

The article 3 of The Decision amended "commercial banks shall accept the supervision and control of the People's Bank of China according to the law" (the article 10 of The Law) into "commercial banks shall accept the supervision and control of the institution of supervision and control on banking of The State Council according to the law, provided that their relevant operations shall accept the supervision and control of another departments or institutions under laws or statutes, such provisions of laws or statutes shall prevail." Besides, " the People's Bank of China " in the article 3, 11, 14, 15, 16, 19, 20, 21, 23, 24, 25, 39, 56, 62, 64, 65, 67, 68, 69, 70 and 71 of The Law also was amended into "the institution of supervision and control on banking of The State Council" accordingly.

In the light of the modifications above-mentioned, the functions of supervision and control to the commercial banks borne by The People's Bank of China have separated and weakened gradually, and transferred to the special institutes. Such modifications may, to a certain extent, develop the reformation and the transformation of function of The People's Bank of China, and lay the foundation for the revising on The Law of The People's Bank of China.

2. Strengthened the supervision and control of the shareholders of The Commercial Banks

The provisions concerning "A commercial bank shall obtain the approval of the People's Bank of China for making the change of shareholders that hold 10 percent or more of the total capital or total amount of shares" as described in the item 5, paragraph 1, article 24 of The Law were amended into " A commercial bank shall obtain the approval of the People's Bank of China for making the change of shareholders that hold 5 percent or more of the total capital or total amount of shares "; and the provisions of "Purchase by any unit or individual of 10 percent or more of the total amount of the shares of a commercial bank shall be subject to prior approval by the People's Bank of China " as prescribed in the article 28 of The Law were amended into " Purchase by any unit or individual of 5 percent or more of the total amount of the shares of a commercial bank shall be subject to prior approval by the institution of supervision and control on banking of State Council."
The share sale and purchase of commercial banks is restricted within narrower limits due to the said modifications, and the purview of the administrative approval to such matters was amplified, objectively, such modification will have an active effect on ensuring the stable and sound operation of commercial banks, and that was the material reflection of the legislative intent of The Law (i.e. "to strengthen supervision and control; to ensure the stable and sound operation of commercial banks; to maintain financial order").

3. Further emphasized the independent operation of commercial banks

The provisions concerning "Wholly State-owned commercial banks shall grant loans to projects that need special loans and are approved by the State Council. The State Council shall take appropriate remedial measures if losses are suffered as a result of the granting of such loans. The specific measures thereof shall be formulated by the State Council" as described in the paragraph 2, article 41 of The Law was omitted in the article 11 of The Decision.

To a certain extent, the former provisions as described in the paragraph 2, article 41 of The Law contained the imprint of administrative controlling, and were in violation of the independent competition and operation under the system of market economy, accordingly, the right of independent operation owned by the wholly state-owned commercial banks was restricted by such provisions. The emendations made by The Decision will be beneficial to strengthen the right of uninfluenced choice owned by the wholly state-owned commercial banks on loaning or not loaning, and also emphasize the importance of the economic rules and the marketable rules for the operation of banking, at last, improve the capability of market competition of the wholly state-owned commercial banks.

4. Extending the time limit of the disposition of adversely classified assets

The provisions of "immovable property or shares obtained by a commercial bank through the exercise of mortgage or the right of pledge shall be disposed of by it within one year from the date which such property or shares were obtained." as described in the paragraph 2, the article 42 of The Law were amended into "immovable property or shares obtained by a commercial bank through the exercise of mortgage or the right of pledge shall be disposed of by it within two years from the date which such property or shares were obtained." by the article 12 of The Decision.

The professionals think that the serious problem that has a bad effect on the stable operations and financial securities of the commercial banks lies in their adversely classified assets, and the disposing of the adversely classified assets is restricted strictly by the provisions of The Law, consequently, the critical state of affairs of the existing adversely classified assets faced by the commercial banks is deteriorated. The emendations made at this time, extend the time limit of disposing the adversely classified assets from one year to two years, authorize the commercial banks correspondingly free power to dispose the refunded assets accepted by them, and alleviate the heavy burdens borne by the commercial banks due to the adversely classified assets.

5. The transition of the mixed operation of commercial banks from being prohibited to restricted

The provisions regarding "No commercial banks may, within the People's Republic of China, engage in trust investment or share business, or invest in immovable property which is not for their own use. No commercial banks may invest in non-banking financial institutions or enterprises within the People's Republic of China. The State Council shall formulate separate measures for implementation with regard to commercial banks which invested in non-banking financial institutions or enterprises prior to the implementation of this law " as mentioned in article 43 of The Law were amended into "No commercial banks may, within the People's Republic of China, engage in trust investment or securities business, or invest in immovable property which is not for their own use and non-banking financial institutions or enterprises, unless The State regulates and stipulates otherwise" in article 13 of The Decision.

Before The Law is amended, a fiery issue cared by the professionals is whether the commercial banks can achieve the transition from the separate operation to the mixed operation, and by virtue of such transition, the capacities of commercial banks on international competing will be strengthened, and their operating methods will accord with the international practice. These emendations made by The Decision add the exclusive clause into The Law on the basis of forbidding the commercial banks mixed operation, to a certain extent, this is a great transition and change from fully forbidding to restricting in the main on the mixed operation of commercial banks.

6. The extending on the time limits of the interbank lending

The provisions concerning "When engaging in interbank lending, the time limits prescribed by the People's Bank of China shall be observed, the maximum time limit being four months. It is forbidden to use such loans for granting fixed asset's loans or making investment "as described in the article 46 of The Law were emended into " When engaging in interbank lending, the provisions prescribed by the People's Bank of China shall be observed. It is forbidden to use such loans for granting fixed asset's loans or making investment " by The Decision.

In virtue of the said emendations cancel the time limits of 4 months on the interbank lending, the powers of competing and existing owned by the commercial banks have been strengthened, and the their operation risks also have been reduced.

-Alex Yang