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China Needs to Break Up Big Banks to Maintain Growth: Economist
CNBC.com | April 04, 2012 | 12:50 AM EDT

Breaking up China's biggest banks would be the "most aggressive reform measures" seen in post-1978 China, a Beijing-based economist told CNBC on Wednesday, adding that it was badly needed if growth in the world's second-biggest economy was to be sustained.

The Big Four Banks, as the largest state-owned lenders are known, cannot continue to be merely a "government financing arm," Alistair Thornton, China Economist at IHS Global Insight said. What the country needs is a commercialized banking sector, he added.

Thornton's comments came after Premier Wen Jiabao said Tuesday that lenders make money "far too easily" and their monopoly on financial services has to be broken if cash-starved private enterprises are to get timely access to capital.

Indeed, the inability for non-state-owned firms to access capital is one of the main hurdles to growing the private sector, and a breakup may be necessary, Wen said.

"Frankly, our banks make profits far too easily," China National Radio quoted Wen as telling local businesses at a roundtable discussion. "Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital."

"That's why right now, as we're dealing with the issue of getting private capital into the finance sector, essentially, that means we have to break up their monopoly," the radio news service reported Wen as saying on its website.

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