Li Wuchen is 33 years old and has worked as a stock broker for three years, but he looked as nervous as a high school student facing the SAT as he stood outside a university building on a recent Saturday morning and studied a government-issued manual one last time.
“This is my third time taking the test,” he said. “I must pass by the end of this year or lose my job.”
Chinese regulators have stepped up their policing of banks, ordered them to limit their counterparty risk in overseas derivatives transactions and reviewed trust companies to make sure that they are not taking inappropriate risks. But China’s most unusual response to international financial turmoil has been the government’s decision to increase rapidly the number of qualification tests that are required for workers in the financial sector. The government has also increased the number of people required to take these tests.
PHOTO: NY TIMES NEWS SERVICE
The improvements that China is starting to make in its financial regulatory system are likely to be tested heavily in the next few months.
Recently, Chinese banking regulators have taken a series of steps to encourage banks to lend much more heavily, as part of a broader government effort to halt an economic slowdown unfolding with alarming speed.
State-controlled banks — and almost all banks in China are still majority-owned by the government — are being told to lower the required down payments on home mortgages, lend more money to exporters and provide much greater financing for local and provincial governments engaged in building new roads and other infrastructure projects.
PHOTO: NY TIMES NEWS SERVICE
Yet the longer-term health of the Chinese economy may depend on regulators’ and bank managers’ ability to accomplish all of this without impairing the credit quality and risk management systems still being introduced here. Failure could expose Chinese banks to the kinds of problems now bedeviling their Western rivals.
Testing managers could be part of the answer. China has a long history of relying much more heavily than Western countries on tests to choose winners and losers — imperial officials were tested for their knowledge of literature as early as 2,000 years ago. Mao Zedong (毛澤東) eliminated many examinations, but Deng Xiaoping (鄧小平) began to revive them after 1978, partly as a way to weed out incompetent officials who had risen through the ranks based only on political connections or seniority.
As the number of college graduates rises steeply in China and universities struggle to maintain the quality of education in a rapid expansion, the number of exams is rising even more quickly. That is particularly true in financial services, as the government worries about repeating the West’s financial mistakes.
More cautious and more heavily regulated, Chinese financial institutions appear to have weathered the crisis better so far. Chinese banks require down payments of 20 percent to 50 percent on mortgages to discourage borrowers from reneging on debts, and since 2004 have been forced by the government to limit their real estate lending.
But like the US and many other countries, China faces falling real estate prices and steeply declining share prices — and regulators are increasingly worried.
“Bad loans are already showing an upward trend, especially in the property market, where the mortgage default risk is growing at an accelerating pace,” said Jiang Dingzhi, the vice chairman of the China Banking Regulatory Commission, at a conference this fall. He provided no details, nor have Chinese banks released any recent updates on their nonperforming loans.
Bush administration officials have pushed China to open up its financial markets and allow greater financial innovation.
“That need not be at odds with learning the lessons from the recent turmoil in the United States,” US Undersecretary of the Treasury for international affairs David McCormick said, adding that improvements in international financial regulation were also needed.
Without singling out China, McCormick cautioned that protectionism was “a very real risk — throughout history in times of stress, in times of turmoil and anxiety, there’s a tendency to turn inwards.”
Chinese banks have disclosed holdings of US mortgage-backed securities, but such holdings have been tiny compared with the banks’ total assets. Yet — despite signs of trouble in the domestic real estate sector — regulators have focused on foreign transactions in particular, fearing that international turmoil in financial markets will spread to China.
“There are new sources of volatility that threaten our sound and stable growth,” the China Banking Regulatory Commission said in a statement in October. “It is important to recognize these new problems and make careful decisions to cope with them.”
Some financial experts warn that China may go too far in continuing to limit competition for its banking system through heavy regulation.
“Strengthening regulation of risk control, strengthening bank examination — all of these are good in principle,” said Wei Shang-jin (魏尚進), a Columbia University finance professor. “It’s always difficult to resist the temptation to go overboard, and China might miss the chance to strengthen its banking system.”
For instance, with the government maintaining very large majority stakes in each bank, Chinese banks remain susceptible to pressures to lend to politically connected borrowers.
The China Banking Regulatory Commission already has a basic competence test for bankers but abruptly authorized three more in July, all of which are supposed to be ready by the end of this year. The new tests are for risk managers, certified financial analysts and information security engineers.
Approximately 200,000 people in the banking sector alone will be required to pass the risk management test within one year or lose their jobs, said Walter Wang, the president of ATA, a Beijing-based company traded on NASDAQ that administers many of the Chinese government’s financial regulatory tests.
Even bank branch employees who sell products like mutual funds and currencies will be required to pass the risk management test. The only limit on how many times someone can try to pass the test is that the tests are typically administered three or four times a year.
Chinese regulators are also preparing to require bank employees involved in the issuance of mortgages to start taking a national qualification test late next year as well, Wang said. The China Insurance Regulatory Commission is also drafting extensive new test requirements, and the government is considering certification tests for real estate brokers and other professionals.
“The authorities are paying attention to what is happening outside of China, and they are reacting,” ATA chief financial officer Carl Yeung said.
Li, the stock broker, took his recent test at the College of Computer Science and Technology at the Beijing University of Technology.
He was one of 2,500 men and women taking the brokerage test, most of whom appeared to be in their 20s or 30s. Age discrimination is widespread in China, partly because many people who grew up during the Cultural Revolution in the late 1960s and early 1970s were denied years of formal education.
The college, on the northeast outskirts of Beijing, has a leafy campus that rivals those of many US universities, and is certainly well equipped. Each of the 2,500 test takers was sent to a different desktop computer, arranged in rows on desks in a series of well-lighted halls.
Before taking the test, each test taker was photographed and the image stored. Some in China try to send ringers to take the test for them. When there is any hint of fraud, the photos taken at the test center are compared with reliable photos of the person who was supposed to be taking the test.
In some cases, the tests offer a guide to where China wants to go someday in financial deregulation: Li had to take the stock brokerage test for a third time because he had previously failed twice a section involving financial derivatives.
“The financial derivatives are not even launched yet in the market,” he said. “So we don’t have practical experience.”
A Chinese freighter that allegedly snapped an undersea cable linking Taiwan proper to Penghu County is suspected of being owned by a Chinese state-run company and had docked at the ports of Kaohsiung and Keelung for three months using different names. On Tuesday last week, the Togo-flagged freighter Hong Tai 58 (宏泰58號) and its Chinese crew were detained after the Taipei-Penghu No. 3 submarine cable was severed. When the Coast Guard Administration (CGA) first attempted to detain the ship on grounds of possible sabotage, its crew said the ship’s name was Hong Tai 168, although the Automatic Identification System (AIS)
An Akizuki-class destroyer last month made the first-ever solo transit of a Japan Maritime Self-Defense Force ship through the Taiwan Strait, Japanese government officials with knowledge of the matter said yesterday. The JS Akizuki carried out a north-to-south transit through the Taiwan Strait on Feb. 5 as it sailed to the South China Sea to participate in a joint exercise with US, Australian and Philippine forces that day. The Japanese destroyer JS Sazanami in September last year made the Japan Maritime Self-Defense Force’s first-ever transit through the Taiwan Strait, but it was joined by vessels from New Zealand and Australia,
SECURITY: The purpose for giving Hong Kong and Macau residents more lenient paths to permanent residency no longer applies due to China’s policies, a source said The government is considering removing an optional path to citizenship for residents from Hong Kong and Macau, and lengthening the terms for permanent residence eligibility, a source said yesterday. In a bid to prevent the Chinese Communist Party (CCP) from infiltrating Taiwan through immigration from Hong Kong and Macau, the government could amend immigration laws for residents of the territories who currently receive preferential treatment, an official familiar with the matter speaking on condition of anonymity said. The move was part of “national security-related legislative reform,” they added. Under the amendments, arrivals from the Chinese territories would have to reside in Taiwan for
COORDINATION, ASSURANCE: Separately, representatives reintroduced a bill that asks the state department to review guidelines on how the US engages with Taiwan US senators on Tuesday introduced the Taiwan travel and tourism coordination act, which they said would bolster bilateral travel and cooperation. The bill, proposed by US senators Marsha Blackburn and Brian Schatz, seeks to establish “robust security screenings for those traveling to the US from Asia, open new markets for American industry, and strengthen the economic partnership between the US and Taiwan,” they said in a statement. “Travel and tourism play a crucial role in a nation’s economic security,” but Taiwan faces “pressure and coercion from the Chinese Communist Party [CCP]” in this sector, the statement said. As Taiwan is a “vital trading
RSS