interested in purchasing EUR assets. The EU was also pleased to see that the EUR
had become such an important part of China’s foreign exchange reserve.
7.1.2.2 Banking Supervision Rules
China and the EU shared many common interests in thisfield; the EU played the
role of active promoter, while China played the role of active acceptor. Before the
crisis, as the New Basel Accord was vigorously popularized in Europe and the
international community, on October 1, 2002, the Basel Committee initiated a new
round of surveys (the third Quantitative Impact Study) to evaluate the possible
impact of the New Accord on the Minimum Capital Requirement for banks
worldwide. Meanwhile, the Basel Committee strengthened the development of
operational risk management and supervision procedures and updated Sound
Practices for the Management and Supervision of Operational Riskagain by
providing a specific method of calculating capital requirement for operational risk
in February, 2003. The Basel Committee planned to release the last exposure draft
in the second quarter of 2003, pass the New Accord by the end of 2003, and enable
full implementation of it in the Group of Ten (G10) Summit by the end of 2006.
Meanwhile, the New Basel Accord also aroused strong repercussions in China’s
banking sector. Given many problems in the standardized approach for calculating
credit risk, it was widely believed among Chinese banks that an internal
rating-based approach might more accurately reflect internal relations between
capital and bank risk, that it was beneficial for reinforcing risk asset assessment and
management within banks and that it really represented major progress compared
with the simple determination of risk weight or determination of risk weight made
according to rating the results from an external agency; thus it was necessary to
immediately start developing an internal rating-based approach rather than wait for
the development of the external rating agency. However, it was difficult to carry out
an internal rating-based approach in China. An internal rating-based approach has
very high requirements for various kinds of data, while Chinese banks particularly
lacked the analytical ability for quantifying credit risk. However, if a large number
of international banks adopted the internal rating-based approach and their Chinese
counterparts lagged behind, the Chinese counterparts would be in a disadvanta-
geous position in international competition, thus domestic banks were highly
enthusiastic about developing an internal rating-based approach; the New Accord
greatly boosted risk management in domestic banks.^2 China and the EU were in
complete agreement on promoting worldwide implementation of the New Basel
Accord.
(^2) Baidu Encyclopedia: explanation of nouns“Basel Concordat”,http://baike.baidu.com/view/
131677.htm.
7 China-EU Relations in the Context of Global Financial Governance 143