| Governor Chen | ||||||
“I personally spend 80% of my time working on the NPL problem,” says Chen Yuan, governor of the China Development Bank. “I drive everyone crazy about them. They occupy my mind seven days a week.” The assistant governor, JP Zhao, jumps in and quickly points out: “I think he even dreams about them.”
Chen is one of the new breed of bankers in China who actually care where their institutions’ money is going.
Since Chen joined the CDB in 1998 the level of non-performing loans in the bank has been slashed by nearly 24%. They now stand at 8.78%. That, by any banks’ standards’, is pretty impressive. It’s even more remarkable when talking about a Chinese state-owned policy bank – one that operates under the watchful eye of the state development&planning committee, the state economic&trade commission, and the finance ministry, and that channels funds into large state-driven projects.
Chen says that to achieve the drop in NPLs he has told his staff that although the bank’s mandate is to help foster China’s economic growth through infrastructure projects it is only to be done with good loans. He says: “I have told our local branches that they are no longer a subsidiary of local government. Being a good bank is their number one priority.” Admittedly, Chen received a helping hand when, in 1999, 13% of the bank’s bad paper was shifted into Cinda Asset Management Corporation, one of the asset management companies set up by the central government to deal with the country’s NPL problem. Since then, though, CDB has been by itself.
Running a bank like a commercial business means that Chen has made few friends in provincial government circles. “I only ask one favour from borrowers; that they pay the loan back. And, yes, basically this upsets people. But they change their attitude when they realize we won’t give them any more loans until they do pay. I don’t do this for personal benefit. This is for the good of the economy.” The governor also says that he has made enemies in the bank by forcing the employees to change their minds and introducing new lending criteria.
Chen entered banking relatively late in his career when in 1988 he was asked to be deputy governor of the central bank, the People’s Bank of China. He admits that when he first joined he didn’t have much experience but, as he says: “At that time, banks weren’t very important.”
He was born just outside Beijing in 1949. His parents moved to the capital a few months later just before the People’s Republic was declared on October 1 1949. While studying engineering at Tsinghua University, he developed a taste for philosophy. Karl Marx was a favourite. “His views are very good,” he says. But Chen’s unable to stop thinking about NPLs. “However Marx’s views on finance and loans were not right and are definitely not relevant now,” he adds.
After graduating Chen was allocated work in such government bodies as the state planning department and Beijing’s municipal government. It was a career path that many engineers were asked to choose. Chen explains: “At that time, the economy was looked at like a big machine and so having some mathematics was useful. It just wasn’t a very effective way of doing it.”
His horizons broadened when he joined the central bank as he took responsibility for technology, clearing and international conferences. The latter was more by default than choice. His spoken English was better than that of colleagues. On top of that, they still didn’t believe meeting foreign financiers was that important. “I learnt much by going to IMF meetings and I started to understand what the international banks actually did,” he says. “I also started to comprehend the nature of exchange rates.”
This understanding of the importance of currency stability helped Chen make his name. He brought his ideas back to China. “Fast growth is good, but it should not come at a cost to the exchange rate,” he says. “I went to many internal meetings and shared my opinions. Eventually currency stability was introduced. It is my legacy. I learned from history that if you have discipline you can get things done.”
Chen finds taking on the provincial governments, local politicians and state owned enterprises draining. “Sometimes it would make my life easier if I just went ahead and made the loans. People think I am very strange,” he sighs.
At weekends Chen says he isolates himself and doesn’t make any phone calls. The assistant governor reacts: “That’s not true. Last weekend he called me twice for business.” Chen defends himself: “Well, OK, after a good sleep I get some new energy and new ideas. But I don’t phone at crazy times, like 2am. This is, after all, just the financial sector. This is not some military action or a security issue.”
