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A summary of the Chinese financial sector

Dr. Massimo Luppino.

9 dicembre 2002


Massimo Luppino, si è laureato con il massimo dei voti in Economia e Commercio all’Università degli Studi di Firenze, ed ha studiato alla University of Applied Sciences di Acquisgrana (Germania) e alla Boston University (Massachusetts, USA). Dopo diverse esperienze di lavoro effettuate in Italia e all'estero, da novembre 2001 collabora come autore con Magistra occupandosi di analisi e approfondimenti sul sistema bancario tedesco.

Dello stesso autore: The German Banking Supervisory System.

With an economy recording above-average growth, China is becoming increasingly attractive to international investors. At the same time, WTO membership is helping to integrate the country into the global economy. China's financial system is being shaped by the transition to a market economy.

The Chinese Securities Law establishes the separation between banks, the securities market, trusts and insurance companies as a fundamental principle. The supervisory set-up also reflects this separation.


The banking system

After the foundation of the new China, the People's Bank of China (PBOC) was until 1979 the only bank there for domestic business, acting as both the central bank and a commercial bank. Since 1984, the PBOC has operated solely as a central bank. The Chinese banking system consists of four big state-owned commercial banks, ten national commercial joint-stock banks,

110 regional commercial joint-stock banks, two building and loan associations and 44,555 cooperative banks. 177 foreign financial institutions are also represented in China.

To relieve the commercial banks of special political functions and allow market-oriented reform, the Chinese government set up three state banks with special functions: the State Development Bank, the Agricultural Development Bank of China and the Export and Import Bank of China. These banks are responsible for implementing government steering policy and provide funds for reconstruction projects.

The Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank and the Agricultural Bank of China are the four biggest state commercial banks, with a nationwide network of branches. At the end of 2001, they had a 62 % share of savings and lending business and an 80 % share of payments business. Past developments mean that these banks are saddled with a very large proportion of high-risk loans.

Although the aim of the ten national joint-stock banks was to work the market throughout the country, they have recently been focusing particularly on the coastal regions. The regional banks, on the other hand, concentrate more on the remaining local markets. The credit cooperatives are scattered among small towns and rural villages. Their range of services is geared specially to small and medium-sized enterprises (SMEs).

Foreign banks operate in "open" cities such as Beijing, Shanghai Shenzhen and Guangzhou, conducting mainly foreign-currency business. Gradual access to RMB business is, however, likely.

Despite twenty years of reform policy, China's banks are still at an early stage of their development. Their main lines of business are traditional deposit-taking, lending and payments. Higher-value banking has not yet emerged, although the booming Chinese economy is stoking demand for financial services. Foreign investment is making headlines in China's banking scene.


The securities system

China is still a planned economy to some extent; the stock market and the securities sector, on the other hand, are already run on market-economy lines. The launch of the Shanghai Stock Exchange in 1990 marked the start of a new era. Twelve months later, the Shenzhen Stock Exchange opened for business. There are three futures exchanges in Shanghai, Zhengzhou and Dalian. More than 1,200 companies are listed on Chinese stock exchanges. Just under 20 investment companies manage 53 funds and around € 10 billion worth of assets.

Going public is a highly popular way of raising funds. It is relatively easy because the Chinese public do not yet have access to alternative investment facilities such as life insurance or property funds. With a 40 % personal savings ratio, China has considerable surplus demand. However, large-scale manipulation and even fraud have hurt investor confidence. The types of securities available include government bonds, corporate bonds and bonds issued by financial institutions with special functions. Securities trading focuses exclusively on government bonds.


The insurance system

The insurance system is supervised by the Insurance Regulatory Commission. 46 insurance firms, 127 agents, 27 brokers and 27 assessors currently operate in China.

In September 2001, 21 foreign and joint-venture insurance firms were also present there, along with over 200 representative offices of global-name insurance firms. Banks, post offices and transport systems (bus, rail and plane) are also available as distribution channels.


Financial corporations of large groups/Trust and investment groups

Financial corporations are non-banks which make available medium- and long-term funds to corporate groups for plant modernisation, product development or marketing finance purposes.

Trust and investment groups are also non-banks, set up as complementary organisations at the start of China's reform process to develop lines of business which banks were unable to conduct at the time because of restrictions imposed under the country's planned-economy regime. A lack of regulation has caused chaos in this sector. Many trust and investment groups obtained business licences that were far too broad in scope, covering everything from raising domestic and foreign funds, imports and exports, real estate operations and leasing to lending to companies and governments. The Chinese government intends to radically reform this sector.

The leasing sector is divided into two segments. 15 companies have non-bank status and are subject to PBOC supervision. The main lines of business are leasing, lending and the like. A further 40 leasing firms are joint ventures approved by the Ministry of Foreign Trade and Economic Cooperation. They were set up to finance imports and are funded by domestic and foreign shareholders. 

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