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China unveils revamp map

Beijing, March 6 (Reuters): China unveiled an ambitious government revamp today to tackle ailing banks and state firms, twin issues that threaten to undermine the world’s fastest-growing major economy.

In the third government restructuring in a decade, the Cabinet announced plans for several US-style regulatory bodies, notably a banking watchdog and a commission to manage government holdings in thousands of state firms. “Those two new agencies are the most important,” Qu Hongbin, an HSBC economist in Hong Kong, said.

“Financial reform is the area that Beijing cannot afford to muddle through.”

The banking regulator —to be carved out of the central People’s Bank of China — would help transform state banks from debt-laden tools of central planning into modern, market-savvy financial houses, analysts said.

The amount of bad debt in China’s banking system could run into the hundreds of billions of dollars, accounting for as much as half of all loans.

A $1.2 trillion pool of deposits has so far kept the banks afloat, but that could change as China, the world’s sixth-largest economy, opens its financial sector wider to foreign competition and gives people alternative places to save their money.

“Setting up this banking regulator will be favourable for reducing bad loans,” said Qin Xiao, chairman of the conglomerate China Merchants Group. He said it made sense to have a separate body to oversee state firms. “If they are under one regulator, there will be suspicion that you are ordering your banks to make loans to your enterprises.”

The steps could also encourage more lending to private firms that account for most of China’s economic growth but are starved for cash as lenders stick to government-backed firms. “Who is creating jobs' It’s not the government, it’s not the state firms, it’s the private sector. But it’s sad to see the private sector has very little access to credit. Money cannot get to the guy who can generate jobs,” Qu said.

The last government restructuring, in 1998, was aimed at slashing fat from a notoriously bloated bureaucracy that has stifled business and frustrated leaders with its resistance to change. This year’s makeover will cut more red tape and erase bureaucratic overlap that has slowed reform.

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