China welcomes multimillion-dollar fine

BEIJING -- China on Tuesday welcomed a $20 million fine imposed on the U.S. branch of one of its biggest state banks, saying the action would encourage reform in its banking industry.

U.S. officials announced Friday that the Bank of China would pay the fine to settle charges of fraud and improper loans by its New York branch. The money is to be split equally between the U.S. and Chinese governments.

The punishment "is a warning to other banks and is aimed to promote careful management within banks," the Xinhua News Agency paraphrased an unidentified spokesman for the Chinese central bank as saying.

"The case indicated the close cooperation between financial regulators of the two countries," Xinhua said.

U.S. Treasury investigators said the offenses took place in 1991-99, and included improper loans to people who had personal relationships with Bank of China officials and fraudulent loan and letter-of-credit schemes.

Such abuses are said to be widespread in China's state banking industry, where influential borrowers receive special treatment and loans that are never repaid.

But the industry is changing as banks come under pressure to become profit-oriented. China has promised to open its market to foreign banks as part of its new membership in the World Trade Organization.

Reformers hope such outside pressure will help to clean up the industry and reduce political influence in bank management.

The Bank of China "is deepening internal reforms to meet the challenges posed by China's accession to the World Trade Organization," the state newspaper China Daily quoted Foreign Ministry spokesman Sun Yuxi as saying.

The Bank of China didn't admit any wrongdoing in agreeing to pay the American fine and stressed that the alleged offenses occurred under managers who already have left its New York branch.

The official in charge of the branch in the early 1990s was fired this month as president of another major state bank, the China Construction Bank.