Banking in China

China's banking sector had CN¥417 trillion (US$58.54 trillion) in assets at the end of 2023.[1] 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, all of which are among the largest banks in the world as of 2018. Other notable big and also the largest banks in the world are China Merchants Bank and Ping An Bank.

History

Supervisory bodies

The 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 exchange and 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 rate for commercial banks and trading in government bonds. The State Council maintains oversight of PBOC policies. The PBC does not have central bank independence and is politically required to implement the policies of the Chinese Communist Party (CCP).[2]

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 macroeconomy and monetary policy. Most of the functions of the Central Financial Work Commission, which had been created in 1998 as the implementing body for Communist Party financial policies, coordinating regulatory agencies in the financial sector, conducting investigations and disciplinary inspections, and making personnel recommendations, were transferred to the CBRC.

Domestic key players

Reforms in the banking industry

As part of the State Council's 1993 Resolution on Financial System Reform and its effort to modernize the financial sector, the People's Bank of China was assigned the role of managing the currency and preserving macroeconomic and financial stability.[6]

China issued its Commercial Bank Law in 1995.[7] It allowed state-owned banks to be commercialized.[7] The Commercial Bank Law stated that state-owned banks should operate on principles of efficiency and safety, take responsibility for profits and losses, and lend with a focus on "the need for the development of the national economy and social progress and under the guidance of state industrial policy."[6]

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% 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.

Credit and Debit cards

By the end of the first quarter of 2009, about 1,888,374,100 (1.89 billion) bank cards had 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.[9] In 2010 China had over 2.4 billion bankcards in circulation growing approximately 16% from the end of 2009.[10] At the end of 2008, China had approximately 1.84 million POS machines and 167,500 ATMs. About 1.18 million merchants in China accept banking cards.[11]

At the end of 2008, there were 196 issuers in China that issue China UnionPay-branded cards.[11] 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 like China Merchants Bank and Ping An Bank

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 (US$72.3 million), of which at least 400 million RMB (US$48.2 million) must be held in RMB and at least 200 million RMB (US$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 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 (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—

Digital and Mobile 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.

Regulatory oversight has also tightened to manage financial risks associated with fintech. In 2023, China undertook a major overhaul of its financial regulatory system, establishing the National Financial Regulatory Administration (NFRA) to replace the China Banking and Insurance Regulatory Commission (CBIRC), unifying supervision over the financial sector (excluding securities).[12]

See also

• History of banking in China
• List of banks in China
• China Securities Journal

External links

• China Banking Association (official website)