Policy makers have held talks about transferring new capital into banks, said Li Fu'an, deputy head of the bank management department at the People's Bank of China. The top four banks need 2.4 trillion yuan (US$290 billion) in asset transfers and new capital to become competitive with foreign rivals and attractive to investors by 2005, according to Goldman Sachs Group Inc.

"If you want to go the whole hog, it could cost 3 trillion yuan for banks to meet international standards," said Jonathan Anderson, the International Monetary Fund's former China representative.

The Bank of China, Agricultural Bank of China and China Construction Bank received a 270 billion yuan bailout four years ago, helping them as they shifted 1.4 trillion yuan of loans to asset management companies.

Since then, more loans have gone bad as the government has cut support for state-owned companies, a problem that was a focal point of the Chinese government's annual financial conference, held last week.

"There have been policy suggestions about injecting capital into commercial banks but no final decision has been made," the central bank's Li said.

The politburo member Wen Jiabao last week said that reducing bad loans is the biggest financial issue facing the nation. The government says about a quarter of advances at the top four lenders are non-performing, though Moody's Investors Service says the real level could be 45 percent.

To ensure banks clean up their loans faster, the financial conference also discussed whether to split the bank supervisory functions of the People's Bank of China away from the central bank, which would retain control of monetary policy.

Setting up a banking supervising agency "is a very complicated issue, which needs much more time for consideration before a final decision is made," Li said.

Regulators have told banks to reduce non-performing loans by 2006, when they'll be exposed to head-to-head competition from foreign banks.

To meet that target, "it is likely that some form of government intervention will be necessary," Standard & Poor's said in a report last week.

(eastday.com January 29, 2003)