- Banking in China
bankingsystem has undergone significant changes in the last two decades: banks are now functioning more like banks than before. Nevertheless, China's banking industry has remained in the government's hands even though banks have gained more autonomy. China's accession to WTOwill lead to a significant opening of this industry to foreign participation.
central bankof the People's Republic of Chinais the People's Bank of China.
The "big four" state-owned commercial banks are the
Bank of China, the China Construction Bank, the Industrial and Commercial Bank of Chinaand the Agricultural Bank of China.
People's Bank of China(PBOC) is China’s central bank, which formulates and implements monetary policy. The PBOC maintains the banking sector's payment, clearing and settlement systems, and manages official foreign exchangeand gold reserves. It oversees the State Administration of Foreign Exchange(SAFE) for setting foreign-exchange policies.
According to the 1995 Central Bank law, PBOC has full autonomy in applying the monetary instruments, including setting
interest ratefor commercial banks and trading in government bonds. The State Councilmaintains oversightof PBOC policies. China Banking Regulatory Commission(CBRC) was officially launched on April 28, 2003, to take over the supervisory role of the PBOC. The goal of the landmark reform is to improve the efficiency of bank supervisionand to help the PBOC to further focus on the macro economyand currency policy.
According to the official Announcement by CBRC posted on its website, the CBRC is responsible for "the regulation and supervision of banks, asset management companies, trust and investment companies as well as other deposit-taking financial institutions. Its mission is to maintain a safe and sound banking system in China."
Domestic key players
tate-owned commercial banks – The ‘Big Four’
In 1995, the
Chinese Governmentintroduced the Commercial Bank Law to commercialize the operations of the four state-owned banks, the Bank of China(BOC), the China Construction Bank(CCB), the Agricultural Bank of China(ABC), and the Industrial and Commercial Bank of China(ICBC).
The Industrial & Commerce Bank of China (ICBC) is the largest bank in China by total assets, total employees and total customers. ICBC differentiates itself from the other State Owned Commercial Banks by being second in foreign exchange business and 1st in RMB clearing business. It used to be the major supplier of funds to China's
urban areas and manufacturingsector.
The Bank of China (BOC) specializes in foreign-exchange
transactions and trade finance. In 2002, BOC Hong Kong (Holdings) was successfully listed on the Hong Kong Stock Exchange. The USD2.8 billion offering was over-subscribed by 7.5 times. The deal was a significant move in the reform of China’s banking industry.
The China Construction Bank (CCB) specializes in medium to long-term
creditfor long term specialized projects, such as infrastructureprojects and urban housingdevelopment.
The Agriculture Bank of China (ABC) specializes in providing financing to China's
agriculturalsector and offers wholesale and retail banking services to farmers, township and village enterprises (TVEs) and other rural institutions.
Three new "policy" banks, the
Agricultural Development Bank of China(ADBC), China Development Bank(CDB), and the Export-Import Bank of China(Chexim), were established in 1994 to take over the government-directed spending functions of the four state-owned commercial banks. These banks are responsible for financing economic and trade development and state-invested projects.
ADBC provides funds for agricultural development projects in rural areas; the CDB specializes in infrastructure financing, and Chexim specializes in trade financing.
econd tier commercial banks
In addition to the big four state-owned commercial banks, there are smaller commercial banks. The largest ones in this group include the
Bank of Communications, CITICIndustrial Bank, China Everbright Bank, Hua Xia Bank, China Minsheng Bank, Guangdong Development Bank, Shenzhen Development Bank, China Merchants Bank, Shanghai Pudong Development Bankand Fujian Industrial Bank. The second tier banks are generally healthier in terms of asset quality and profitability and have much lower non-performing loanratios than the big four.
Trust and investment corporations
In the midst of the reforms of the 1980s, the government established some new
investment banks that engaged in various forms of merchant and investment bankingactivities. However, many of the 240 or so international trust and investment corporations (ITICs) established by government agencies and provincial authorities experienced severe liquidityproblems after the bankruptcy of the Guangdong International Trust and Investment Corporation (GITIC) in late 1998. The largest surviving ITIC is China International Trust and Investment Corporation(CITIC), which has a banking subsidiary known as CITIC Industrial Bank.
Reforms in the banking industry
Years of government-directed lending has presented Chinese banks with large amounts of
non-performing loans. According to the Central Bank’s report, non-performing loans account for 21.4 percent to 26.1% of total lending of China’s four big banks in 2002. In 1999, four asset managementcompanies (AMC) were established to transfer the non-performing assets from the banks. The AMCs plan to repackage the non-performing loans into viable assets and sell them off to the investors.
PBOC has encouraged banks to
diversifytheir portfolios by increasing their services to the private sectorand individual consumers. In July 2000, a personal credit ratingsystem was launched in Shanghaito be used to assess consumer credit riskand set ratings standards. This is an important move in developing China’s consumer creditindustry, and increase bank loans to individuals.
The central government has allowed several small banks to raise capital through bonds or stock issues. Followed the listing of
Shenzhen Development Bankand Pudong Development Bank, China Minsheng Bank, the only private bank in China, was listed on the Shanghai Stock Exchange(A-Share) in December 2000. More Chinese banks are expected to list in the next two years in order to raise capital.
The reform of the banking system has been accompanied by PBOC’s decision to decontrol
interest rates. Market-based interest rate reform is intended to establish the pricing mechanismof the deposit and lending rates based on market supply and demand. The central bank would continue to adjust and guide the interest rate development, which allows the market mechanism to play a dominant role in financial resource allocation.
The sequence of the reform is to liberalize the interest rate of foreign
currencybefore that of domestic currency, lending before deposit, large amount and long term before small amount and short term. As a first step, the PBOC liberalized the interest rates for foreign currency loans and large deposits (US$3 million and over) in September 2000. Rate for deposits below US$3 million remain subject to PBOC control. In March 2002, the PBOC unified foreign currency interest rate policies for Chinese and foreign financial institutions in China. Small foreign exchange deposits of Chinese residents with foreign banks in China were included in the PBOC interest rate administration of small foreign exchange deposits, so that domestic and foreign financial institutions are treated fairly with regard to the interest rate policy of foreign exchange deposits.
As interest rate liberalization progressed, the PPOC liberalized, simplified or abandoned 114 categories of interest rates initially under control since 1996. At present, 34 categories of interest rates remain subject to PBOC control. The full liberalization of interest rates on other deposit accounts, including checking and saving accounts, is expected to take much longer. On the lending side, market-determined interest rates on loans will first be introduced in rural areas and then followed by rate liberalization in cities.
Between 1985 and 2006, China has issued 714 million
banking cards, of which almost 96% are debit cards. Only 29.13 million of the banking cards are credit cards, and 4 million of these carry the China UnionPaylogo. There are over 110 banking card issuers in China, which include the ‘big four’ banks (Industrial and Commercial Bank of China, the Bank of China, China Construction Bank, and the Agricultural Bank of China), as well as fast-growing second tier banks and city commercial banks.
China's state-owned commercial banks recently began to issue a dual-currency card, allowing cardholders to purchase goods within China in RMB and overseas in US dollars.
According to a 2003 research study by
VISA, the average per transaction purchase with a card was USD 253. Consumers used their credit cards mainly to purchase houses, vehicles, and home appliances, as well as to pay utilitybills.
One major issue is the lack of a national
credit bureauto provide credit information for banks to evaluate individual loanapplicants. In 2002, the Shanghai Information Office and the People’s Bank of China Shanghai branch established the first personal credit data organization involving 15 commercial banks. The Chinese Government, aiming to promote a nationwide credit system, has also set up a credit system research group. At present, large cities, such as Beijing, Guangzhou, Shenzhen, Chongqing, and Chengdu, are calling for a reliable credit data system. The PBOC is currently evaluating the feasibility of establishing a nationwide credit bureau.
Other obstacles include lack of merchant acceptance and a weak infrastructure for card processing. At present, only 2% of merchants in China are equipped to handle card transactions, although in some major cities like Shanghai the percentage is over 30%.
China UnionPaywas established to set up a national processing network connecting merchants and banks. China UnionPay has set up bankcard network service centers in 18 cities in addition to a national bankcard information switch center.
Products and services in the credit card system that the Chinese government wants to develop are credit card-related hardware, including POS and ATMs, credit card-related software for banks and merchants; and Credit and risk management training programs.
China’s entry into the WTO is expected to create opportunities for foreign banks. As a milestone move to honor its WTO commitments, China released the "Rules for Implementing the Regulations Governing Foreign Financial Institutions in the People’s Republic of China" in January 2002. The rules provide detailed regulations for implementing the administration of the establishment, registration, scope of business, qualification, supervision, dissolution and liquidation of foreign financial institutions. They also stipulate that foreign bank branches conducting full aspects of foreign-currency business and full aspects of RMB business to all categories of clients are required to have operating capital of at least 600 million RMB (USD$ 72.3 million), of which at least 400 million RMB (USD$48.2 million) must be held in RMB and at least 200 million RMB (USD$24.1 million) in freely convertible currency.
Client restriction on foreign currency business was lifted immediately after China’s entry into the WTO on December 11, 2001. Since then, foreign financial institutions have been permitted to provide foreign currency services to Chinese enterprises and individuals, and have been permitted to provide local currency business to all Chinese clients by the end of 2006.
Furthermore, when China entered the WTO, geographic restrictions placed on RMB-denominated business was phased out in four major cities—
Shanghai, Shenzhen, Tianjinand Dalian. Then, on December 1, 2002, foreign-funded banks were allowed to commence RMB-denominated business in Guangzhou, Zhuhai, Qingdao, Nanjingand Wuhan.
In 1994, China started the "Golden Card Project," enabling cards issued by banks to be used all over the country through a network. The establishment of the
China Association of Banksrapidly promoted the inter-bank card network and by the end of 2004, the inter-region-inter-bank network had reached 600 cities, including all prefecture-level cities and more than 300 economically developed county-level cities.
History of banking in China
List of banks in the People's Republic of China
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