Stabilising China’s finances
Lan Xinzhen

On October 30, the People’s Bank of China-China’s central bank-issued the Report on Chinese Financial Stability 2006. The report concluded that China’s financial reform has undergone tremendous breakthroughs, financial risks have been handled properly, and that the Chinese financial industry is generally stable.
“A stabilized Chinese financial sector is good news for the world economy,” noted Liu Fuxiang, professor with University of International Business and Economics, who focuses on international finance study.
The report is second of its kind. The first report was issued on November 7, 2005, concluding that the Chinese financial sector was generally stable, the same as this year. However, the first report also pointed out that Chinese financial stability was confronted with 10 challenges, including the economic growth mode and the management of financial companies.
Liu said that, after the Asian financial crisis in 1997, when people marveled at the effort China had made to stabilize the Asian financial market, they were also worried about whether China could successfully deal with its own possible financial challenges after the full opening of the Chinese financial market at the end of this year.
“Judging from the current situation, there is no need to worry. The Chinese financial market is capable of dealing with all odds,” Liu said.
The eight-year trek
From 1998, preventing and resolving financial risks has remained the focus of the Chinese financial market. Up till 2006, the Chinese financial industry has undergone fundamental changes.
“In the past, the high rate of non-performing assets and low level of marketization bore many risks. The capital adequacy ratio, and the asset quality have been improved. The profitability and the sustainable fiscal development have also been strengthened,” said Liu. “Currently, our banking industry is competitive even in the international market.”
Among the big four state-owned banks, Bank of China, China Construction Bank and Industrial and Commercial Bank of China have finished joint stock reform and are listed, with the non-performing loan rate at 5.41 percent, 3.51 percent, and 4.69 percent, respectively. Agricultural Bank of China is preparing for reform measures.
In the securities field, the financial report pointed out that the reshuffle of securities companies made a positive achievement. Eight securities companies, namely, China Galaxy Securities, Guotai Junan Securities, Huaxia Securities, Beijing Securities, Tiantong Securities, Southwest Securities, Xinjiang Securities and Shenyin & Wanguo Securities, have all been reshuffled, resulting in a reallocation of resources in the securities sector.
In terms of insurance, insurance companies established standardized management structures and 40 of the domestic insurance companies had changed to a shareholders’ system. By the end of 2005, the direct stock investment conducted by insurance companies reached 15.89 billion yuan.
“More importantly, the construction of financial infrastructure is being strengthened and the financial environment is improving,” noted Liu.
The report shows the payment service network system is formed and is becoming mature. An emergency mechanism, enabling quick response, was initially established with the system. At the same time, financial legislation had achieved great development. The amendment of the Company Law and Securities Law enhanced the law enforcement effort. The enterprise accounting standard was further improved, and a nationwide data network on the credit information of enterprises and individuals is now functioning. Additionally, an anti-money laundering campaign is ongoing.
“The Chinese Government has been working very hard to stabilize its financial market,” noted Liu.
Liu said that the Central Government injected 1.4 trillion yuan for the reform of state-owned banks. Adding the money to prevent financial risks in city credit cooperatives, rural cooperative funds, investment and trust companies and city commercial banks, the government had injected no less than 3 trillion yuan in all, amounting to the fiscal revenue of the whole country in 2005.
To secure long-term stability
After several years of financial reform, the Chinese financial market is opened further to the outside world.
The financial stability report shows that, by the end of 2005, the number of foreign-owned or foreign-funded banking institutions had reached 254, with combined assets of $87.657 billion, accounting for 1.89 percent of overall banking assets. Currently, 154 foreign banking institutions are allowed to operate renminbi business in 25 cities, and another 25 foreign financial institutions hole shares in 20 domestic financial institutions in the banking sector.
There are currently seven foreign-engaged securities companies. The total number of foreign-engaged fund management companies is 20, while the number of qualified foreign institutional investors is 32.
There are 40 insurance operational institutions involving foreign funds, 23 of which are Sino-foreign joint ventures and the remaining 17 are wholly foreign-funded with total assets standing at 40.18 billion yuan and 26.606 billion yuan respectively, accounting for 2.64 and 1.75 percent of the overall insurance assets of the country.
“The Chinese financial sector is gradually becoming an international financial market. After the full opening up of the Chinese financial market on December 11 this year, this trend will speed up. Therefore, it is imperative that our financial industry remains stable,” said Zhou Maoqing, researcher with Chinese Academy of Social Sciences (CASS).
The financial report also pointed out that the People’s Bank of China will further boost the healthy and sustainable development of the financial industry as well as its stability.
The report noted China should pay attention to the possible negative influence brought about by an imbalanced global economy, fluctuations of oil prices, the structural problems of the domestic economy and finance, the growing competition in the financial sector and the potential risks of financial innovation.
The imbalanced global economy will lead to long-term low interest rates, the hiking resource and asset prices. Meanwhile, the adjustment of the imbalanced global economy, especially a disorderly one, will magnify the swings of exchange rates of the world’s major currencies, slowing down the U.S. economy, therefore impacting China’s export and economic growth.
Moreover, the fluctuating supply and prices of resource products such as oil is a major concern for China, giving rise to increasing import cost and potential inflation pressure, which consequently would make the economy suffer a resources bottleneck and threaten economic sustainability.
The structural problems, such as excessive fixed assets investment growth, inadequate consumption, and an imbalanced international balance of payments, are plaguing sustainable economic growth, building up inflation pressure, causing excess liquidity and hikes in asset prices. These will lead to banks facing a rising credit risk along with systematic risks of the economic and financial sectors. The structural problems of the financial sector made banks shoulder some responsibilities, which should have been shouldered by the financial market. The mounting financial risks confronting banks are harmful to the healthy and sustainable development of the banking industry.
The report admits that the innovation ability of financial institutions is not strong and they are short of a system encouraging this.
“If those problems are not resolved, it is hard to maintain long-term financial stability,” said Zhou Maoqing.
On recognizing the difficulties, the People’s Bank of China stated in the report that China will continue to carry out sound fiscal and monetary policies, and improve and optimize macro-control in an effort to boost the sustainable and healthy development of the economy and finance. Meanwhile, the government will speed up to establish a deposit insurance system, covering all deposit financial institutions to enhance protection of depositors and supplement the current financial supervision.
Mounting problems
The problems affecting financial stability go far beyond what the report cited.
He Dexu, researcher with Institute of Finance and Trade Economics of CASS, noted that the effective market access of financial institutions is conducive to the stable development of the market. He said China needs to improve its legislation on finance and insurance.
The fluctuation of the macro economy, the decrease of real estate prices and real estate loans, and the loss of banking credit, caused by the fluctuation of the real estate market, are three potential risks confronting the financial market.
As the financial sector increases its support to the real estate industry, the latter’s capital will account for more on the financial market. According to statistics from the central bank, by the end of 2005, the loans relating to real estate reached 3.07 trillion yuan, making up 14.84 percent of the total loan balance of all financial institutions. Real estate is, to some extent, posing a threat to the whole financial sector.
As a matter of fact, the Shanghai Financial Stability Report issued by the People’s Bank of China on August 31 had recognized the abovementioned problems. As an important economic and financial hub of China, the financial situation of Shanghai is imperative to the overall economic situation of China. The Shanghai report revealed that the real estate development of Shanghai is heavily reliant on bank loans and that the fluctuation of the real estate market will directly affect the price of financial assets and loan quality. In 2005, Shanghai’s real estate market showed signs of cooling off. Thus special attention should be focused on risks brought about by individual housing loans due to the depreciation of mortgaged property.
“Although the financial stability report concludes that the financial sector is generally stable, we should not take it for granted and at the same time, we should attach great importance to other elements which will influence financial stability,” said Zhou Maoqing.

(The Daily Mail-Beijing Review Articles Exchange Item)


India wades through AIDS
Mamoona Ali Kazmi

India is one of the largest and most heavily populated countries in the world, with over one billion inhabitants. Of this number more than 5 million are currently living with HIV/AIDS. India has a greater number of people living with HIV than any other nation in the world. The first AIDS case in India was detected in 1985, and since then HIV infection has been reported in all States and Union Territories. Infection rate soared through out 1990s, and increased further in recent years. The epidemic is affecting all sectors of Indian society.
UNAIDS estimated that there were 5.7 million people in India living with HIV/AIDS. By the end of July 2005, the total number of AIDS cases reported to National AIDS Control Organisation (NACO) was 111,608. Of this number, 32,567 were women and 37% were under the age of 30. These figures are not completely accurate reflections of the actual situation as large number of AIDS cases go unreported. In India some 310,000 people died of AIDS in 1999. India accounts for almost 13% of global HIV prevalence. Director General of India’s National AIDS Control Organization, Sujatha Rao told reporters in New Delhi on 23 April 2006, that 5.21 million Indians suffers from AIDS.
According to experts, the major reason behind the widespread of AIDS in India is the historical indifference to public health, India spends less than 20 cents (11 P) a head on HIV prevention and treatment which amounts to be one-third of the spending in Thailand and one-ninth of that in Uganda.
People living with HIV in India come from incredibly diverse backgrounds, cultures and life styles. In India AIDS is seen as something that effects people living on the margins of society whose life styles are considered immoral. Most of the Security Forces deployed by the Indian government in troubled areas for countering insurgency are victims of HIV/AIDS. AIDS kills most of them then bullets. Director General of Assam Rifles admitted, “ More jawans were dying because of AIDS than to direct military action. AIDS cases are on the rise in India’s all Paramilitary Forces. In March 2006, 473 HIV positive cases were reported among India’s Paramilitary Forces personnel. The Central Reserve Police Force (CRPF) reported 158 case; the Assam rifles reported 123 cases followed by Border Security Force (BSF) 100 cases and Central Industrial Security Force (CISF) 79 cases.
People living with HIV are facing discrimination at family as well as society level. People with HIV/AIDS have been rejected by their families, spouses and communities ,been refused medical treatment and in some cases denied the last rites before they die. Discrimination is also common in the health care sector. A 2005 study found that 25% of people living with HIV in India had been refused medical treatment on the basis of their HIV positive status. It also found strong evidence of stigma in workplace, with 74% of employees not disclosing their status to their employers for fear of discrimination. Most of the time HIV positive people are thrown out of job after their HIV positive status is disclosed. Landlords evict people the moment they come to know of their tenant’s HIV positive status.
AIDS is increasing in India and will have a devastating effect on India in future. A 2002 report by CIA’s National Intelligence Council predicted 20 to 25 million cases in India by 2010- more than any other country in the world. Due to the deadly disease, more than a million Indian children under the age of 15 have lost one or both parents to AIDS. One-sixth of all new AIDS cases in the world occur in India, 30 % of which are women.
Indian government is projecting that there is a decrease in AIDS but the reality is that all NGO’s and AIDS activists are doubtful that the situation is improving. Anjali Gopalan of the Naz Foundation , New Delhi said, It is the reverse. All the NGO’s I know have recorded increase in the number of people accepting help because of HIV positive. I am really worried that we are just burying our head in the sand over this”.
India’s HIV epidemic is at a critical stage . India is spending a huge budget on defence to disturb balance of military power in the region. However, in social indicators of literacy, poverty, spread of AIDS and Human Rights factor, India lags behind even her smallest neighbour in South Asia. The common Indian being the poorest in the world starves to death via AIDS while the government concern is to engage itself in huge arms build up. Indian government’s failure to tackle the increasing culture of alcoholism, drug usage, and social injustices are the main reasons for the increase in disease. The frustrated unemployed youth take recourse to drug, alcohol and other narcotic substances, which are in turn make them victims to AIDS. The spread of HIV in a country where poverty illiteracy and poor health facilities are rampant is not surprising . What is surprising is lack of initiative from the government side. The government of India instead of facing the situation is ignoring it and consistently arguing that the statistics regarding HIV victims are false.

Pakistan not an epicenter of terrorism
Shamsa Ishfaq

For Pakistan, particularly last few months have been very bad, as some negative news about Pakistan appeared in a large section of print and electronic media one after the other in a row as if some well planned media campaign was going on. As terrorist attacks and suicide bombings rhetoric are providing good stuff for reading these days, therefore, western and hostile Indian media have also jumped on the bandwagon aimed at defaming Pakistan and her contribution in fighting menace of terrorism. The alleged linkages of Pakistan with terrorism and violence are too readily made whenever any act of terrorism is perpetuated anywhere in the world. Pakistan has been a frontline ally of USA in her war on terror which is very hard to digest by many others. Therefore, anti-Pakistan lobby is actively engaged in proliferating baseless propaganda against Pakistan through media, which simply stir sensationalism and nothing else.
Terrorism, let alone its causes, has emerged as the biggest threat to world peace today. Suicide bombing has altered power equation in the favour of terrorists. The global environments today are dominated by the events that unfortunately have glaring impact on Muslims as an Ummah, giving rise to the perception that Islam is an intolerant religion and Pakistan, a terrorist breeding factory. Whereas the fact is that Pakistan has spared no efforts to curb terrorism in any form. Pakistan’s decision to join the international coalition against terrorism has been driven by its own principled stance against terrorism in all its form and manifestations and to rid the society of religious extremism. Pakistan had already adopted this course well before 9/11 and had banned certain militant organizations and despite the disturbed internal dynamics and misgivings of the general public over events in Afghanistan and Middle East, the government took the bold decisions to support the US and other allies.
Government of Pakistan has taken several political, legislative and administrative measures to combat terrorism at the national and international levels. At the international level, cooperation with the United Nations took place, where all anti-terrorism measures taken by the UN in pursuance of Security Council resolutions were implemented. Accounts and assets, of a number of entities and individuals on the Terrorists’ List, were frozen. Pakistan is a signatory of 10 out of 12 UN anti-terrorism conventions and in the recent past acceded to the UN convention on suppression of terrorist bombing and signed the OIC convention on combating international terrorism. Extradition treaties with 27 countries have also been signed. Several terrorist suspects have been deported under these treaties. At the domestic level President Musharraf’s regime presented anti-terrorism act. The Anti-Terrorism Ordinance 2001 was promulgated on 14 August 2001 with a view to effectively deal with acts of terrorism and sectarian militancy. Later, further amendments were incorporated to make it wholesome and encompassing. Anti-terrorism courts have started functioning through out the country to ensure speedy trials of cases regarding terrorism. So far, 16 militant organizations have been proscribed and two have been put on the watch list. A fully equipped National Crisis Management Cell (NCMC) has been established in the Ministry of Interior. The Provincial governments have also set up similar Crisis Management Cells.