"We could permit banks to take funds originally earmarked for payment of income taxes and instead use them to bring down their non-performing loans," he told a briefing in Beijing.

Jin also pointed out that the government had previously used part of its massive foreign exchange reserves to recapitalize ailing banks, without directly saying that the policy would be repeated.

In late 2003, China injected a total of 45 billion dollars into two of its four largest state-owned commercial banks, Bank of China and China Construction Bank, as part of the lenders' restructuring programs.

China is better equipped than ever for this kind of financial first aid with foreign exchange reserves in 2004 soaring to a record 609.9 billion dollars from 403.3 billion dollars in 2003.

However Jin said the government would expect to see improved performance in return for its help.

"We've got the ability to assist the reform of the state-owned commercial banks," he said. "But we hope that in return for that money we'll get a new mechanism."

He also said that China was willing to cooperate with foreign banks on improving the operations of the local banking sector.

The Chinese banking system suffers from huge non-performing loans, including 1.4 trillion yuan (170 billion dollars) shifted to four asset management companies created six years ago.

Bringing down this mountain of bad debt has become an urgent task for China as it seeks to prepare its largest banks for overseas share sales, making them as attractive as possible to potential foreign investors.

The overseas share sales are a key element in the government's attempts to revamp the banking industry so that it can compete with the world's elite in the domestic market following China's entry into the World Trade Organization.