CRACKING THE MONOPOLY. China plunges into era of modern banking. Full-service bank is boldest financial experiment yet

Dressed in a ``Mao suit'' and black cotton slippers, Li Xiangrui appeared to be a people's banker, ready to crack the monopoly of the Bank of China and other state banks. As president of the Bank of Communications, reopening today, he and his staff have been working quietly to pioneer modern banking in China. He discussed his hopes for the country's boldest financial experiment at his new headquarters in Shanghai's old financial district at No. 200 Jiujiang Rd.

``Reestablishing the Bank of Communications both promotes financial reform and is the product of financial reform,'' Mr. Li said. ``The state's specialized banks have had specialized monopolies; we want to break the old system.''

First established in 1908, the Bank of Communications ceased operations after the Communists came took power in 1949, except for a branch still active in Hong Kong. In 1984, Premier Zhao Ziyang personally ordered a revival of the bank and a restructuring that permits it to offer more comprehensive services than any other bank in China. Observers here say the bank could become the most powerful financial institution in the country.

``The scope of our business is quite wide,'' Li said. It includes accepting deposits in renminbi and foreign-exchange certificates, the two kinds of currency used in China. The bank may also accept deposits from Chinese living overseas, handle both banking and nonbanking business, and make loans to foreign companies, as well as Chinese enterprises. Along with six other Shanghai institutions, it may publicly trade shares issued by local enterprises.

As Li spoke, dust and the noise of hammers and drills drifted through the door of the reception room. Workmen were busy restoring the handsome interior - with crystal chandeliers and marble staircases - of what more than four decades ago was Shanghai's Jincheng (``King City'') Bank building.

Li will need all the skills learned from his 40 years in the banking business to survive. Appointed as president and chairman of the board by the State Council (China's Cabinet) in January, he is also president of the Shanghai branch of the People's Bank of China, the country's central bank. But he said he will soon resign from that post to take on his new responsibilities full time.

He described the Bank of Communications as a ``comprehensive socialist bank'' that would promote horizontal economic relations in an industry that has operated exclusively from the top down. The head office was recently moved from Peking to Shanghai, and Li said this would help reestablish Shanghai as a financial and economic center.

``The old banks are not suited to China's economic reforms.... The trend of financial reform is that an enterprise can choose its bank, and a bank can choose the enterprise,'' Li said. The Bank of Communications overlaps with the functions and markets of other banks and has already begun competing with them for major accounts.

China's specialized state banks are assigned fixed markets. These include the Industrial & Commercial Bank serving industrial enterpises and urban businesses, the Agricultural Bank specializing in rural business, and the Construction Bank that invests in capital contruction projects. Until last year, only the Bank of China was allowed to handle foreign-exchange accounts, monopolizing the most sought-after banking business.

After a period of trial operations that began late last year, the Bank of Communications has opened some 500 new accounts, with deposits of more than 1 billion renminbi ($270 million), including foreign-exchange holdings worth several tens of millions of dollars. Officials at the bank's first branch office in Nanking said they have received more than 100 account applications, including several from the largest state enterprises in the area.

Unlike other banks, the Bank of Communications is authorized to open offices anywhere in the country. Li hopes eventually to have 20 domestic branches, though the first year he will concentrate on Shanghai and the nearby provinces.

Shanghai observers say that Li and his managing director, Gu Shuzhen, have gathered together a remarkable group of financial strategists and bankers. They say the bank is the ``leading edge'' of real financial reform and that it is a much more important innovation than Shanghai's so-called stock market or the limited bond trading now permitted in Shenyang and some other cities which grabbed headlines last year.

``By putting into operation a modern, full-service bank, they're going to force the rest of the banks in China to modernize,'' said a Shanghai observer.

The Bank of Communications' biggest asset could be its efficiency and eagerness for new business in an industry where service has long been a problem. Unlike other banks, where applications are delayed by many months of investigations and where new accounts are often not welcome, the new bank acts quickly to approve newcomers.

Although officially a state bank, 5 to 10 percent of its equity will be sold privately, with the rest held by government authorities and state enterprises in Shanghai and Peking. The bank's board so far includes 17 members, with six from the People's Bank of China's head office in Peking, and the State Commission for Restructuring the Economic System, three from the bank's Hong Kong branch, and eight from Shanghai. None of the directors are from the Bank of China.

A big challenge for Li will be training his staff to handle complex foreign-exchange transactions to compete with his principle rival, the Bank of China. This will be essential if the bank is to attract and keep accounts from foreign firms and state industries involved in the import-export business.

Li admitted there is ``serious competition'' with the Bank of China, though he said cooperation is also necessary. He recently called on the Bank of China's president in Peking and asked for help, especially in mastering foreign-exchange dealing.

``He said he'd do his best to help us,'' Li said hopefully.