This year, authorities of related government departments have repeatedly stated that the three sectors that are currently under state monopoly - energy, communications and finance - will be opened up to domestic private investors before foreign players are allowed to enter.

Hence, the thriving of non-state banks is simply part of an irreversible trend.

Private economy has been growing with an eye-catching speed and is becoming a remarkable driving force for the country's economic progress and prosperity, the article said.

In some coastal provinces, the volume of private business takes up nearly half of the local economy. Many private businesses are moving steadily towards outweighing their state-owned counterparts.

Numerous private businesses now require better financial services commensurate with their rising position in the economy.

Though the government has repeatedly urged financial institutions to improve their services for the development of non-state sectors, private businesses still find it difficult to get the needed financial support.

In this case, a restructuring of the financial system is imperative. Non-state financial institutions should be established to meet the demands of private firms, the article urged.

An expanded banking system with the participation of non-state banks will not only provide more funds for private businesses but will also speed up the sector's reform through introducing competition for the dominant state banks.

Usually, large enterprises seldom have difficulties borrowing money because most banks and financial agencies favor them when granting loans.

As a result, small businesses, though in need of funds, often get the cold shoulder when applying for loans.

In fact, small enterprises make up of a great part of the financial market which is far from being fully exploited, the article pointed out.

Non-state banks should see the enormous reservoir of opportunities in the market, rather than fight with their big brothers for "golden clients."

Given the fact that small and medium-sized private businesses need fund support most and that the accumulation of large amounts of funds is difficult for non-state banks, these banks had better target small and medium-sized private businesses as their potential clients and rely on good performance rather than engaging in the wild pursuit of big business from the very outset.

Non-state banks need to see that the secret of success for them is not a large scale but a flexible mode of operation and a competitive edge derived from this.

The government should also take new measures in line with the requirements of the market economy to foster the growth of non-state banks, the article said.

It is vital to modify financial laws and regulations to smooth the way for private investors to form incorporate financial institutions.

The state should make more room for these small institutions to mature through market competition.

For example, qualified non-state banks should be allowed to set up branches in different areas and list in the stock market.

The financial authorities need to set clear-cut standards for the establishment of non-state banks, including the minimum number of shareholders, capital scale and qualifications of management. It is better to lower the minimum requirement to encourage the flow of more private capital into this sector.

On the other hand, the state should strengthen its administration on such activities as mergers, liquidations and bankruptcies of non-state banks. Poorly performing banks should be forced to close.

These measures will help guarantee fair play in the market and reduce risks in the sector. Bank managers will also feel the pressure to improve their performance.

Moreover, a deposit guarantee system, in which banks should keep a required reserve of deposits against possible risks, should also be set up. The system will help small banks raise their credit and expand their business on a secure base.

In some cities, the credit cooperatives - a special type of financial institution which allows the participation of private capital - have topped other institutions with their outstanding performance.

The state should view the successful non-state banks as seeds for the future and make more efforts to foster their further development and reform.

(China Daily 12/16/2000)