SHANGHAIâ€"China's pledge to give private capital real access to the nation's lucrative banking sector has triggered more skepticism than excitement, with analysts saying entry barriers remain firmly in place.
As part of Beijing's broad campaign to boost a slowing economy, government arms from the railways ministry to the banking and securities regulators have unveiled measures aimed at encouraging more investment by private businesses in sectors traditionally dominated by the state.
The bank regulator's steps include allowing private firms to own more than 20% of a regional lender, permitting microfinancing firms to be restructured into banks and lowering the threshold for setting up rural banks.
Although China's state media cheered the measures as a crucial step in breaking the state's near-monopoly in banking, private entrepreneurs and financial experts were less enthusiastic.
"The so-called reform doesn't include anything substantial," said Joe Zhang, head of Wansui Microloan Co., a microfinancing firm based in the southern province of Guangdong.
Mr. Zhang, formerly managing director of UBS AG's China operations, said any attempt to revamp a microfinancing company into a bank will surely meet strong headwinds.
Fang Peilin, owner of a credit-guarantee company in Wenzhou, an eastern Chinese city with a reputation for fostering private entrepreneurship, said the bulk of the reform measures in fact reiterate existing rules, and the criteria for private capital to buy into a bank remain stringent.
For example, Mr. Fang said, regulations for transforming a microfinancing firm into a bank have been in place since June 2009â€"and there hasn't yet been a single successful case.
"The bar is still very high for private capital," said an executive at a midsize Chinese bank. "Banks would prefer partners with which they have an existing relationship rather than some little-known private fund."
The timing of the declared reformsâ€"during an economic slowdownâ€"has some analysts and entrepreneurs wondering whether the government's real intention is to get private businesses to bail out troubled state enterprises or provide a lifeline to cash-strapped sectors like the railways and hospitals.
The rules on investment in city commercial banks or rural credit cooperative make it sound that way: Private companies looking to own a stake of more than 20% must agree to help the bank or cooperative restructure and dispose of bad assets, the China Banking Regulatory Commission said.
"The CBRC measures will do little to correct the fundamental problems in China's financial system, such as the [state] monopoly and the funding difficulties faced by small businesses," said Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.
Indeed, in Zhejiang, the province where Wenzhou is located, private capital has already achieved dominance in certain segments of the banking sector, but this has done little to ease the funding difficulties faced by small businesses. According to CBRC data, at the end of 2011 private ownership in the province's 10 city commercial banks and 112 rural financial institutions stood at 76% and 97%, respectively. Still, a decline in global demand and surge in rates in the unofficial "gray market" lending system last year led to a string of business failures in the province, prompting dozens of business owners to flee.
"I don't think the introduction of private capital will boost the efficiency of the financial system as long as China maintains its grip on interest rates and continues to impose administrative limits on bank lending," said Mr. Yi.
And giving private capital greater access to the banking system, he added, is likely to increase the level of risk in the financial sector.
"Some private investors are likely to take advantage of regulatory loopholes to conduct speculative businesses," he said. "Are the regulators ready for that?"
â€"Rose Yu and Yue Li
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