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China looking at reform of banks

Chinese premier Wen Jiabao said its state-owned banks are monopolies that must be broken up, acknowledging mounting economic and political pressure to reform an industry whose vast profits are fuelling public anger.

Mr Wen's comments suggest Beijing sees a growing political danger from its failure to carry out long-promised reforms of state banks, which pay minimal interest on deposits and made tens of billions of dollars in profit last year.

Public resentment has risen as China's rapid economic growth slows and fears of job losses rise.

Speaking to businesspeople, Mr Wen, the country's top economic official, said Beijing has launched reforms aimed at serving entrepreneurs better by opening up banking to private investors, China National Radio reported. It gave no indication of a possible timeline for further reforms.

"Our banks make money too easily. Why? Because a small number of big banks have monopoly status," Mr Wen said, according to a transcript on the CNR website. "To allow private capital to flow into finance, basically, we need to break the monopoly."

Mr Wen spoke during a visit to Fujian province in the south east, a centre for export-driven private enterprise.

The government announced last week it will launch a pilot project to expand private lending in Wenzhou in neighbouring Zhejiang province after a wave of defaults on underground lending that supported businesses there. "I think those elements in Wenzhou that succeed need to be expanded nationwide and can immediately be introduced nationwide," Mr Wen said, according to the transcript.

Communist leaders have long used Chinese banks to subsidise state industry, shifting wealth from savers to politically favoured companies. Entrepreneurs produce most of China's new jobs and wealth but get only a small percentage of bank loans.

That has fuelled resentment, especially as the "big four" major state-owned commercial banks, which account for about half of deposits, report record profits.

China's biggest lender, Industrial & Commercial Bank of China Ltd, earned 33.1 billion US dollars in 2011, ranking it among the world's most profitable companies. Other major banks - Bank of China Ltd, Construction Bank of China Ltd and Agriculture Bank of China Ltd - reported similar windfalls.

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