China's State-owned Commercial Bank Corporate Governance Research

At present, the state-owned commercial banks of china are standing at a turning-point. The big four face a lot of problems: Firstly ,non-performing-assets ratio (the total NPL in the big four accounts for about twenty percent of the total two trillions). Second Problem is the low capital adequacy in the big four. Thirdly, the state-owned commercial Banks are not performing well in the terms of realizing profitability. With China's entry into world Trade Organization, reforming the banking industry, especially the four sate-owned commercial banks become an urgent task. The central government has made the decided movies of adopting share-holding reform in the CCB and BOC and has injected capital to the amount of 45 billion USD to the two banks to the purpose that turn these state-owned commercial banks into modern commercial banks, Premier Wenjiabao said: "There is no alternative, this reform for China is a make-or- break reform, and success is the only acceptable option, China cannot afford to lose and cannot afford to see failure.The theories on corporate'governance provide with us a very good framework to discuss Share-holding banks.Generally speaking, corporate governance includes internal mechanism and external mechanism, the former emphasizes structure of property right, incentive mechanism and balance mechanism, While the latter focuses on regulatory environment and competitionWe find Chinese government both as a manager of state and owner of state=ownedcommercial banks, inevitably give the banks two conflicting task--stabilizing thestate and maximizing banks' profits. Given the incentive mechanism, that is, income from control right account for a much larger part of the bankers' salary than contractual income. Banker can do nothing but what the government wants them to do. It is the crucial factor that state-owned commercial banks have so many problems.Referring to the theories and practices of corporate governances, in the light of the reality of China's economy and banking industry, we strongly recommend: First of all , a more balanced organizational structure should be set up immediately in which board of directors, managers and supervisory board should be separated and responsible for their own actions,. Government should permit foreign or native institutional investors and individuals to hold the share of capital of the big four, meanwhile, pay more attention to the reform of incentive mechanism.