The governor of China's central bank defended the necessity of early public offerings in the Bank of China (BOC) and China Construction Bank (CCB) on Friday, pledging to press ahead with reform.

Speaking at the release of the 2005 Bluebook of Finance in China, governor of the People's Bank of China (PBOC) Zhou Xiaochuan chided sceptics who hold there should be no haste in listing the banks and that the focus should lie on internal reforms and control instead.

"The next stages in the reform of State-owned banks -joint-stock restructuring, the ushering in of strategic investors, and stock market listings - are key steps and important milestones of reform," said Zhou.

China is accelerating reform of its four State-owned commercial banks, which still dominate the local banking system.

Authorities picked the BOC and CCB more than one year ago for pilot joint-stock restructuring programmes and recapitalized the two with a combined US$45 billion.

The two banks are now both planning initial public offerings in overseas stock markets and are talking with potential overseas strategic investors.

The Industrial and Commercial Bank of China also won a US$15 billion capital infusion last month.

But the Financial Times reported on Thursday that the BOC's share offering will be delayed until next year because its restructuring and search for a foreign strategic investor have yet to be completed.

Some analysts have expressed pessimism about the pilots, saying little concrete progress has been made. But according to Zhou, a public stock offering will substantially push ahead key reforms such as building efficient incentive systems and ending administrative interference.

"The reform of large State-owned enterprises showed that, in the process of joint-stock reform, particularly in becoming listed companies, all the reforms were very much accelerated," Zhou said.

"Listing is not the end of reform, not even half the job, but it's a milestone," he added.

Aside from other difficulties, China's banking reformers are facing the challenge of bringing the sector's capital adequacy up to international standards.

The "2005 Bluebook, " which was compiled jointly by the Chinese Academy of Social Sciences' Institute of Finance and Banking and the China Development Bank, says China's banking sector will need more than 200 billion yuan (US$24 billion) of capital each year if it is to meet a minimum 8 per cent capital adequacy requirement by the end of 2007, as planned by the banking regulator.

(China Daily May 14, 2005)