Banking in China
Encyclopedia
China's banking system 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
. WTO has accepted China.
The central bank
of the People's Republic of China
is 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 China
and the Agricultural 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 exchange
and gold reserve
s. 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 rate
for commercial bank
s and trading in government bond
s. The State Council
maintains oversight
of 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 supervision and to help the PBOC to further focus on the macro economy and 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."
introduced 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 & Commercial 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 area
s and manufacturing
sector.
The Bank of China (BOC) specializes in foreign-exchange transaction
s 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 credit
for long term specialized projects, such as infrastructure
projects and urban housing
development.
The Agriculture Bank of China (ABC) specializes in providing financing to China's agricultural sector and offers wholesale and retail banking services to farmers, township and village enterprises (TVEs) and other rural institutions.
(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.
, China CITIC Bank
, China Everbright Bank, Hua Xia Bank
, China Minsheng Bank
, Guangdong Development Bank
, Shenzhen Development Bank
, China Merchants Bank
, Shanghai Pudong Development Bank
and Industrial Bank
. The second tier banks are generally healthier in terms of asset quality
and profitability and have much lower non-performing loan
ratios than the big four.
in 1995. In 1998, PBOC announced that all urban cooperative banks change their name to city commercial bank. And there are 69 city commercial banks set up from 1995 to 1998. In 2005 there were 112 city commercial banks in all of China. This number has increased through additional transformations to 140 in 2009.
Most city commercial banks have strong ties to their local government and are majority or wholly state owned. Since 2005 some city commercial banks diversify their shareholders, inviting Chinese and international private companies to take minority shares, merging and cross-shareholding. Some of the banks have listed their shares.
The city commercial banks market orientation is towards supporting the regional economy, but also towards financing local infrastructure and other government projects. Since 2008 a strong trend has emerged for city commercial banks to extend business beyond their home region. They are also often the main shareholder behind village and township banks (VTB). Some have founded so called small loans units to serve smaller business clients better. Taizhou City Commercial Bank
, Bank of Beijing
and Bank of Ningbo
are examples for city commercial banks.
activities. However, many of the 240 or so international trust and investment corporations (ITICs) established by government agencies and provincial authorities experienced severe liquidity problems 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 China CITIC Bank
.
s. According to the Central Bank’s report, non-performing loans account for 21.4% to 26.1% of total lending of China’s four big banks in 2002. In 1999, four asset management companies (AMC) were established to transfer the non-performing assets from the banks. The AMCs plan to repackage the non-performing loans into viable asset
s and sell them off to the investor
s.
PBOC has encouraged banks to diversify
their portfolio
s by increasing their services to the private sector
and individual consumers. In July 2000, a personal credit rating
system was launched in Shanghai
to be used to assess consumer credit risk
and set ratings standards. This is an important move in developing China’s consumer credit industry, 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 Bank
and Pudong Development Bank, China Minsheng Bank, then 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 mechanism of 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 currency
before 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.
At the end of 2008, China had approximately 1.84 million POS
machines and 167,500 ATM
s. About 1.18 million merchants in China accept banking cards.
At the end of 2008, there were 196 issuers in China that issue China UnionPay-branded cards. These issuers 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, and even some foreign banks with local operations.
Most of China's state-owned commercial banks now issue dual-currency cards, allowing cardholders to purchase goods within China in RMB and overseas in US dollars (Visa/MasterCard/AmEx/JCB), Euros (Visa/MasterCard), Australian dollars (MasterCard), or Japanese yen (JCB). However, only Bank of China provides yen and Australian dollar-denominated credit cards.
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 utility
bills.
One major issue is the lack of a national credit bureau
to provide credit information for banks to evaluate individual loan
applicants. 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 UnionPay
was 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.
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. In 2007 five non-mainland banks were allowed to issue bank cards in China, with Bank of East Asia
also allowed to issue UnionPay credit cards in the mainland (United Overseas Bank
and Sumitomo Mitsui Financial Group have only issued cards in their home countries; they are not yet allowed to issue cards within the mainland). In May 2009 Woori Bank
became the first Korean bank allowed to issue UnionPay debit cards on the mainland (it issues UnionPay credit cards in Korea only).
Furthermore, when China entered the WTO, geographic restrictions placed on RMB-denominated business was phased out in four major cities—Shanghai
, Shenzhen
, Tianjin
and Dalian
. Then, on December 1, 2002, foreign-funded banks were allowed to commence RMB-denominated business in Guangzhou
, Zhuhai
, Qingdao
, Nanjing
and Wuhan
.
Autonomy
Autonomy is a concept found in moral, political and bioethical philosophy. Within these contexts, it is the capacity of a rational individual to make an informed, un-coerced decision...
. WTO has accepted China.
The central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of the People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
is the People's Bank of China
People's Bank of China
The People's Bank of China is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China...
.
The "big four"
Big Four (banks)
Big Four is the colloquial name for the four main banks in several countries, where the banking industry is dominated by just four institutions and where the phrase has gained currency.-Australia:...
state-owned commercial banks are the Bank of China
Bank of China
Bank of China Limited is one of the big four state-owned commercial banks of the People's Republic of China. It was founded in 1912 by the Government of the Republic of China, to replace the Government Bank of Imperial China. It is the oldest bank in China...
, the China Construction Bank
China Construction Bank
China Construction Bank is one of the 'big four' banks in the People's Republic of China. To date, it is ranked as the nation's second largest and the second largest bank in the world by market capitalization and 12th largest company in the world. The bank has approximately 13,629 domestic branches...
, the Industrial and Commercial Bank of China
Industrial and Commercial Bank of China
Industrial and Commercial Bank of China Ltd. is the largest bank in the world by profit and market capitalization. It is one China's 'Big Four' state-owned commercial banks .It was founded as a limited company on January 1, 1984...
and the Agricultural Bank of China
Agricultural Bank of China
Agricultural Bank of China Limited , also known as AgBank, is one of the "Big Four" banks in the People's Republic of China. It was founded in 1951, and has its headquarters in Beijing...
.
Supervisory bodies
The People's Bank of ChinaPeople's Bank of China
The People's Bank of China is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China...
(PBOC) is China’s central bank, which formulates and implements monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
. The PBOC maintains the banking sector's payment, clearing and settlement systems, and manages official foreign exchange
Foreign exchange reserves
Foreign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
and gold reserve
Gold Reserve
Gold Reserve Inc. is a gold mining company with operations and mining property in Bolivar State, Venezuela.Founded in 1956, Gold Reserve Inc. is now headquartered in Spokane, Washington. The company has about ten employees at its Washington office and about 55 in Venezuela. Of these 55,...
s. It oversees the State Administration of Foreign Exchange
State Administration of Foreign Exchange
The State Administration of Foreign Exchange of the People's Republic of China is an administrative agency tasked with drafting rules and regulations governing foreign exchange market activities, and managing the state foreign exchange reserves, which at the end of July 2011 stood at $3.2 trillion...
(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 rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
for commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
s and trading in government bond
Government bond
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...
s. The State Council
State Council of the People's Republic of China
The State Council of the People's Republic of China , which is largely synonymous with the Central People's Government after 1954, is the chief administrative authority of the People's Republic of China. It is chaired by the Premier and includes the heads of each governmental department and agency...
maintains oversight
Oversight
Oversight may refer to:*Oversight , a French Thoroughbred racehorse*Regulation – rulemaking*Separation of powers - the concept of separate branches of government or agencies exercising authority over one another...
of PBOC policies.
China Banking Regulatory Commission
China Banking Regulatory Commission
The China Banking Regulatory Commission is an agency of the People's Republic of China authorised by the State Council to regulate the banking sector of the PRC except the territories of Hong Kong and Macau, both of which are special administrative regions...
(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 supervision and to help the PBOC to further focus on the macro economy and 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."
State-owned commercial banks – The ‘Big Four’
In 1995, the Chinese GovernmentGovernment of the People's Republic of China
All power within the government of the People's Republic of China is divided among three bodies: the People's Republic of China, State Council, and the People's Liberation Army . This article is concerned with the formal structure of the state, its departments and their responsibilities...
introduced the Commercial Bank Law to commercialize the operations of the four state-owned banks, the Bank of China
Bank of China
Bank of China Limited is one of the big four state-owned commercial banks of the People's Republic of China. It was founded in 1912 by the Government of the Republic of China, to replace the Government Bank of Imperial China. It is the oldest bank in China...
(BOC), the China Construction Bank
China Construction Bank
China Construction Bank is one of the 'big four' banks in the People's Republic of China. To date, it is ranked as the nation's second largest and the second largest bank in the world by market capitalization and 12th largest company in the world. The bank has approximately 13,629 domestic branches...
(CCB), the Agricultural Bank of China
Agricultural Bank of China
Agricultural Bank of China Limited , also known as AgBank, is one of the "Big Four" banks in the People's Republic of China. It was founded in 1951, and has its headquarters in Beijing...
(ABC), and the Industrial and Commercial Bank of China
Industrial and Commercial Bank of China
Industrial and Commercial Bank of China Ltd. is the largest bank in the world by profit and market capitalization. It is one China's 'Big Four' state-owned commercial banks .It was founded as a limited company on January 1, 1984...
(ICBC).
The Industrial & Commercial 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
Renminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
clearing business. It used to be the major supplier of funds to China's urban area
Urban area
An urban area is characterized by higher population density and vast human features in comparison to areas surrounding it. Urban areas may be cities, towns or conurbations, but the term is not commonly extended to rural settlements such as villages and hamlets.Urban areas are created and further...
s and manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
sector.
The Bank of China (BOC) specializes in foreign-exchange transaction
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
s and trade finance
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
. In 2002, BOC Hong Kong (Holdings) was successfully listed on the Hong Kong Stock Exchange
Hong Kong Stock Exchange
The Hong Kong Stock Exchange is a stock exchange located in Hong Kong. It is Asia's third largest stock exchange in terms of market capitalization behind the Tokyo Stock Exchange and the Shanghai Stock Exchange and fifth largest in the world...
. 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 credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
for long term specialized projects, such as infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
projects and urban housing
House
A house is a building or structure that has the ability to be occupied for dwelling by human beings or other creatures. The term house includes many kinds of different dwellings ranging from rudimentary huts of nomadic tribes to free standing individual structures...
development.
The Agriculture Bank of China (ABC) specializes in providing financing to China's agricultural sector and offers wholesale and retail banking services to farmers, township and village enterprises (TVEs) and other rural institutions.
Policy banks
Three new "policy" banks, the Agricultural Development Bank of ChinaAgricultural Development Bank of China
The Agricultural Development Bank of China is a Policy Bank under the People's Central Bank of China . As such, is responsible for funding projects related to China's economic growth...
(ADBC), China Development Bank
China Development Bank
The China Development Bank is a financial institution in the People's Republic of China under the direct jurisdiction of the State Council. It is the only bank in China whose governor is a full minister...
(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
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
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.
Second 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 CommunicationsBank of Communications
Bank of Communications Limited , founded in 1908, is one of the largest banks in China.-Before 1949:The Bank of Communications was founded in 1908 and emerged as one of the first few major national and note-issuing banks in the early days of the Republic of China...
, China CITIC Bank
China CITIC Bank
China CITIC Bank is China’s seventh-largest lender in terms of total assets. It is formerly known as CITIC Industrial Bank. China CITIC Bank, established in February 1987, is a nationally comprehensive and internationally oriented commercial bank...
, China Everbright Bank, Hua Xia Bank
Hua Xia Bank
Hua Xia Bank is a state-controlled publicly traded bank in the People's Republic of China. It is based in Beijing and was founded in 1992. Germany's Deutsche Bank holds 19.99% of the bank's shares as of 2010.- External links :*...
, China Minsheng Bank
China Minsheng Bank
China Minsheng Bank , founded on January 12, 1996 in Beijing, is the first bank in China to be owned mostly by non-government enterprises. The bank was founded by Jing Shuping, a Chinese lawyer and businessman who become prominent in the People's Republic of China after the nation's founding in...
, Guangdong Development Bank
Guangdong Development Bank
China Guangfa Bank , previously Guangdong Development Bank , is a bank based in Guangzhou, Guangdong in People's Republic of China. The bank was established in September 1988 as a joint stock commercial bank....
, Shenzhen Development Bank
Shenzhen Development Bank
Shenzhen Development Bank Co., Ltd. is a bank based in Shenzhen, Guangdong, People's Republic of China. It is listed on the Shenzhen Stock Exchange.-External links:*...
, China Merchants Bank
China Merchants Bank
China Merchants Bank is a bank headquartered in Shenzhen, China. Founded in 1987, it is the first share-holding commercial bank wholly owned by corporate legal entities.CMB has over five hundred branches in mainland China and one in Hong Kong...
, Shanghai Pudong Development Bank
Shanghai Pudong Development Bank
Shanghai Pudong Development Bank Co. Ltd , incorporated on January 9, 1993 with the approval of the People's Bank of China , is a joint-stock commercial bank with its headquarters located in Shanghai....
and Industrial Bank
Industrial Bank Co.
Industrial Bank Co., Ltd. is a bank based in Fuzhou, Fujian, China.-History:From the day of its establishment on 26 August 1988 to its first name change in June 2001, the bank was called Fujian Industrial Bank...
. The second tier banks are generally healthier in terms of asset quality
Asset quality
Asset quality an evaluation of an asset to measure the credit risk associated with it.-Description:Asset quality is related to the left-hand side of the bank balance sheet. Bank managers are concerned with the quality of their loans since that provides earnings for the bank...
and profitability and have much lower non-performing loan
Non-performing loan
A Non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms....
ratios than the big four.
City commercial banks
The third significant group in Chinese banking market is the city commercial banks. Many of them were founded on the basis of urban credit cooperatives. The first one was Shenzhen City Commercial BankShenzhen City Commercial Bank
Shenzhen City Commercial Bank is a commercial bank based in Shenzhen in the People's Republic of China....
in 1995. In 1998, PBOC announced that all urban cooperative banks change their name to city commercial bank. And there are 69 city commercial banks set up from 1995 to 1998. In 2005 there were 112 city commercial banks in all of China. This number has increased through additional transformations to 140 in 2009.
Most city commercial banks have strong ties to their local government and are majority or wholly state owned. Since 2005 some city commercial banks diversify their shareholders, inviting Chinese and international private companies to take minority shares, merging and cross-shareholding. Some of the banks have listed their shares.
The city commercial banks market orientation is towards supporting the regional economy, but also towards financing local infrastructure and other government projects. Since 2008 a strong trend has emerged for city commercial banks to extend business beyond their home region. They are also often the main shareholder behind village and township banks (VTB). Some have founded so called small loans units to serve smaller business clients better. Taizhou City Commercial Bank
Taizhou City Commercial Bank
Bank of Taizhou is a city commercial bank headquartered in Taizhou, Zhejiang Province - China. On 9th September, 2010, it was officially renamed as Bank of Taizhou from the original name of Taizhou City Commercial BankBank of Taizhou (TZB; simplified Chinese 台州银行) is a city commercial bank...
, Bank of Beijing
Bank of Beijing
The Bank of Beijing is a bank based in Beijing, People's Republic of China. Founded on January 8, 1996 as Beijing City Commercial Bank , it adopted its present name in January 2005....
and Bank of Ningbo
Bank of Ningbo
Bank of Ningbo Company Limited is a city commercial bank in Ningbo, Zhejiang, China. As of June 2008, it operated 78 branches in Ningbo and Shanghai. Since January 2008, Bank of Ningbo has become one of the constitute stocks in Shenzhen Stock Exchange Component Index...
are examples for city commercial banks.
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 bankingInvestment banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
activities. However, many of the 240 or so international trust and investment corporations (ITICs) established by government agencies and provincial authorities experienced severe liquidity problems 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 China CITIC Bank
China CITIC Bank
China CITIC Bank is China’s seventh-largest lender in terms of total assets. It is formerly known as CITIC Industrial Bank. China CITIC Bank, established in February 1987, is a nationally comprehensive and internationally oriented commercial bank...
.
Reforms in the banking industry
Years of government-directed lending has presented Chinese banks with large amounts of non-performing loanNon-performing loan
A Non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms....
s. According to the Central Bank’s report, non-performing loans account for 21.4% to 26.1% of total lending of China’s four big banks in 2002. In 1999, four asset management companies (AMC) were established to transfer the non-performing assets from the banks. The AMCs plan to repackage the non-performing loans into viable asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s and sell them off to the investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
s.
PBOC has encouraged banks to diversify
Diversification (finance)
In finance, diversification means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of...
their portfolio
Portfolio (finance)
Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.-Definition:The term portfolio refers to any collection of financial assets such as stocks, bonds and cash...
s by increasing their services to the private sector
Private sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
and individual consumers. In July 2000, a personal credit rating
Credit rating
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are...
system was launched in Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
to be used to assess consumer credit risk
Consumer credit risk
The following article is based on UK market, other countries may differ.Consumer Credit Risk is the risk of loss due to a customer's non re-payment on a consumer credit product, such as a mortgage, unsecured personal loan, credit card, overdraft etc .-Consumer Credit Risk...
and set ratings standards. This is an important move in developing China’s consumer credit industry, 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 Bank
Shenzhen Development Bank
Shenzhen Development Bank Co., Ltd. is a bank based in Shenzhen, Guangdong, People's Republic of China. It is listed on the Shenzhen Stock Exchange.-External links:*...
and Pudong Development Bank, China Minsheng Bank, then the only private bank in China, was listed on the Shanghai Stock Exchange
Shanghai Stock Exchange
The Shanghai Stock Exchange , abbreviated as 上证所/上證所 or 上交所, is a stock exchange that is based in the city of Shanghai, China. It is one of the two stock exchanges operating independently in the People's Republic of China, the other is the Shenzhen Stock Exchange...
(A-Share) in December 2000. More Chinese banks are expected to list in the next two years in order to raise capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
.
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 mechanism of the deposit and lending rates based on market supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
. 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
Resource allocation
Resource allocation is used to assign the available resources in an economic way. It is part of resource management. In project management, resource allocation is the scheduling of activities and the resources required by those activities while taking into consideration both the resource...
.
The sequence of the reform is to liberalize the interest rate of foreign currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
before 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.
Credit and Debit cards
By the end of the first quarter of 2009, about 1,888,374,100 (1.89 billion) bank cards have been issued in China. Of these cards, 1,737,901,000 (1.74 billion) or 92% were debit cards, while the rest (150,473,100, or 150.5 million) were credit cards. In 2010 China had over 2.4 billion bankcards in circulation growing approximately 16% from the end of 2009.At the end of 2008, China had approximately 1.84 million POS
Point of sale
Point of sale or checkout is the location where a transaction occurs...
machines and 167,500 ATM
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
s. About 1.18 million merchants in China accept banking cards.
At the end of 2008, there were 196 issuers in China that issue China UnionPay-branded cards. These issuers 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, and even some foreign banks with local operations.
Most of China's state-owned commercial banks now issue dual-currency cards, allowing cardholders to purchase goods within China in RMB and overseas in US dollars (Visa/MasterCard/AmEx/JCB), Euros (Visa/MasterCard), Australian dollars (MasterCard), or Japanese yen (JCB). However, only Bank of China provides yen and Australian dollar-denominated credit cards.
According to a 2003 research study by VISA
Visa
Visa or VISA may refer to:* Visa , a document issued by a country's government allowing the holder to enter or to leave that country...
, 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 utility
Utility
In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....
bills.
One major issue is the lack of a national credit bureau
Credit bureau
A credit bureau , or credit reference agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill paying habits...
to provide credit information for banks to evaluate individual loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
applicants. 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
Beijing
Beijing , also known as Peking , is the capital of the People's Republic of China and one of the most populous cities in the world, with a population of 19,612,368 as of 2010. The city is the country's political, cultural, and educational center, and home to the headquarters for most of China's...
, Guangzhou
Guangzhou
Guangzhou , known historically as Canton or Kwangchow, is the capital and largest city of the Guangdong province in the People's Republic of China. Located in southern China on the Pearl River, about north-northwest of Hong Kong, Guangzhou is a key national transportation hub and trading port...
, Shenzhen
Shenzhen
Shenzhen is a major city in the south of Southern China's Guangdong Province, situated immediately north of Hong Kong. The area became China's first—and one of the most successful—Special Economic Zones...
, Chongqing
Chongqing
Chongqing is a major city in Southwest China and one of the five national central cities of China. Administratively, it is one of the PRC's four direct-controlled municipalities , and the only such municipality in inland China.The municipality was created on 14 March 1997, succeeding the...
, and Chengdu
Chengdu
Chengdu , formerly transliterated Chengtu, is the capital of Sichuan province in Southwest China. It holds sub-provincial administrative status...
, are calling for a reliable credit data system. The PBOC is currently evaluating the feasibility of establishing a nationwide credit bureau
Credit bureau
A credit bureau , or credit reference agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill paying habits...
.
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 UnionPay
China UnionPay
China UnionPay , also known as UnionPay or by its abbreviation, CUP, is the only domestic bank card organization in the People's Republic of China . Founded in March 2002, China UnionPay is an association for China's banking card industry, operating under the approval of the People's Bank of China...
was 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.
Foreign banks
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. In 2007 five non-mainland banks were allowed to issue bank cards in China, with Bank of East Asia
Bank of East Asia
The Bank of East Asia Limited often abbreviated to BEA, is the largest independent local bank and the third largest bank in Hong Kong. Its chairman and chief executive is Sir David Li...
also allowed to issue UnionPay credit cards in the mainland (United Overseas Bank
United Overseas Bank
United Overseas Bank Limited , abbreviated as UOB is a bank incorporated in Singapore. It was founded 6 August 1935 by Kuching-born Datuk Wee Kheng Chiang, father of the present United Overseas Bank Group Chairman, Mr...
and Sumitomo Mitsui Financial Group have only issued cards in their home countries; they are not yet allowed to issue cards within the mainland). In May 2009 Woori Bank
Woori Bank
Woori Bank is a bank headquartered in Seoul, Korea. The bank changed its name in 2002, and includes the former Commercial Bank of Korea, Hanil Bank, and Peace Bank. It was known from 1999 through 2002 as Hanvit Bank...
became the first Korean bank allowed to issue UnionPay debit cards on the mainland (it issues UnionPay credit cards in Korea only).
Furthermore, when China entered the WTO, geographic restrictions placed on RMB-denominated business was phased out in four major cities—Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
, Shenzhen
Shenzhen
Shenzhen is a major city in the south of Southern China's Guangdong Province, situated immediately north of Hong Kong. The area became China's first—and one of the most successful—Special Economic Zones...
, Tianjin
Tianjin
' is a metropolis in northern China and one of the five national central cities of the People's Republic of China. It is governed as a direct-controlled municipality, one of four such designations, and is, thus, under direct administration of the central government...
and Dalian
Dalian
Dalian is a major city and seaport in the south of Liaoning province, Northeast China. It faces Shandong to the south, the Yellow Sea to the east and the Bohai Sea to the west and south. Holding sub-provincial administrative status, Dalian is the southernmost city of Northeast China and China's...
. Then, on December 1, 2002, foreign-funded banks were allowed to commence RMB-denominated business in Guangzhou
Guangzhou
Guangzhou , known historically as Canton or Kwangchow, is the capital and largest city of the Guangdong province in the People's Republic of China. Located in southern China on the Pearl River, about north-northwest of Hong Kong, Guangzhou is a key national transportation hub and trading port...
, Zhuhai
Zhuhai
Zhuhai is a prefecture-level city on the southern coast of Guangdong province in the People's Republic of China. Located in the Pearl River Delta, Zhuhai borders Jiangmen to the northwest, Zhongshan to the north, and Macau to the south. Zhuhai was one of the original Special Economic Zones...
, Qingdao
Qingdao
' also known in the West by its postal map spelling Tsingtao, is a major city with a population of over 8.715 million in eastern Shandong province, Eastern China. Its built up area, made of 7 urban districts plus Jimo city, is home to about 4,346,000 inhabitants in 2010.It borders Yantai to the...
, Nanjing
Nanjing
' is the capital of Jiangsu province in China and has a prominent place in Chinese history and culture, having been the capital of China on several occasions...
and Wuhan
Wuhan
Wuhan is the capital of Hubei province, People's Republic of China, and is the most populous city in Central China. It lies at the east of the Jianghan Plain, and the intersection of the middle reaches of the Yangtze and Han rivers...
.
Electronic banking
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 Banks rapidly 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.See also
- History of banking in ChinaHistory of banking in ChinaThe history of banking in China includes the business of dealing with money and credit transactions in China.- Early Chinese banks :Chinese financial institutions were conducting all major banking functions, including the acceptance of deposits, the making of loans, issuing notes, money exchange,...
- List of banks in the People's Republic of China
- China Securities JournalChina Securities JournalThe China Securities Journal is a national securities newspaper, sponsored by Xinhua News Agency. It is based in Beijing, and has two offices in Shanghai and Shenzhen...
External links
- China Banking Association (official website)