China Development Bank may become fully commercialized next year as part of a movement to reform the country's policy banks, Chinese media reported.

In a meeting of related departments in the State Council last week, it was decided to reform the country's policy banks into commercial ones, said the 21st Century Business Herald, without identifying sources.

According to the report, China Development Bank will be the pacesetter in the reform and may complete its transformation in one year.

Traditionally, policy banks focus on granting loans to government-encouraged projects. Through commercialization, they will make decisions based more on profitability, as well as face more stringent supervision.

The Chinese language newspaper said the research bureau of the People's Bank of China is working on the reform plan.

But an official from China Development Bank said they have not got any information on the reform.

"Even if the reform is determined, it will be carried out after the national financial conference (reported to be held before the Spring Festival)," the official said.

"The commercialization of the policy banks is necessary as economic and financial reform goes forward," said Han Meng, a financial expert from the Chinese Academy of Social Sciences.

According to him, if the performance of the policy banks are not good, they will burden the national economy.

He said reform will make the market play a more important role in the banks' operations, but their function as policy lenders is likely to remain.

Chen Yuan, governor of China Development Bank, recently said the bank is still focusing on development financing.

The 21st Century Business Herald said the reform direction of policy banks is not toward commercial banks like the Industrial and Commercial Bank of China. They will not, for instance, involve retail banking and will not absorb savings.

The banking regulator will continue to allow them to issue financial bonds to raise capital.

But the policy banks may face even higher supervision standards.

(China Daily December 7, 2006)