China's Economic Growth and the Financial System Background
After the founding of a new country, China’s economy has completed Twelve “Five-Year Plan” and is now experiencing the thirteenth one. Thanks to the national policy of reform and opening-up to the outside world since 1978, China has enjoyed unprecedentedly rapid and steady economic growth in the past forty years. According to the International Monetary Fund report for China published in October 2018, the socialist market economy of China is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity. With the economic development in China, the financial system has also been witnessing a transition from its initial form to its current global status.
Key Components of the Banking System
Financial and Banking System
The banking system of China consists of the central bank, the regulatory institution, the self-regulatory organization and banking financial institutions.
The People’s Bank of China
The People’s Bank of China (PBC), established in 1948, is the central bank, which, under the leadership of the State Council, shoulders the responsibility of formulating and implementing currency policies, keeping watch on and defusing financial risks and maintaining financial stability. More specifically it supervises monetary policies, currency issue and circulation, currency market, foreign exchange market, gold market, foreign exchange reserve and gold reserve, national treasury, bank resolution and anti-money laundering. In short, it is responsible for carrying out monetary policy and regulation of financial institutions in mainland China, as determined by Bank Law. Since July 2017, the People’s Bank of China has had the largest financial asset holdings of any central bank in the world. Though possessing a high degree of independence by Chinese standards, it remains a department of the State Council.
China Banking Regulatory Commission
China Banking Regulatory Commission, CBRC for short and an agency of the People’s Republic of China, is responsible for the supervision and management of banking financial institutions and their business activities. It is authorized by the State Council to regulate the banking sector of the PRC with the exceptions of Hong Kong and Macao, both of which are special administrative regions. In response to the increasing debt loads, under capitalization and non-transparent business practices on the part of the banks, the government of China recapitalized the banks and set up the CBRC as the country’s independent banking regulator in 2003. Its first chairman was appointed in that year, who served until 2011 and was replaced by the second. The new chairman took his office in 2017. In April 2018, the China Banking Regulatory Commission was merged with the China Insurance Regulatory Commission (CIRC) to form the China Banking and Insurance Regulatory Commission (CBIRC).
Banking and Financial Institutions
Chinese financial institutions conducted all major banking functions, including the acceptance of deposits, the making of loans, issuing notes, money exchange, and long- distance remittance of money.
The banking and financial institutions embrace several categories of banks. The first category includes the policy lenders or non-commercial banks such as China Development Bank (CDB), Export-Import Bank of China (EXIM), and Agricultural Development Bank of China (ADBC). CDB is a national financial institution under the direct jurisdiction of the State Council and the Central People’s Government. The bank was established in March 1994 to provide development-oriented financing for high-priority government projects. It is one of three policy banks in China. EXIM, also established in 1994, is another of the three policy banks. It was chartered to implement the state policies in such fields as industry, foreign trade, diplomacy, economy, and provide policy financial support so as to promote the export of Chinese products and services. As a third policy bank, ADBC works to support the development of the agriculture industry in China, offering deposit, loan, bill settlement, financing, and other services and providing its services to individuals, enterprises, and other clients.
The second kind of bank covers the large commercial banks like Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), Agricultural Bank of China (ABC), China Construction Bank (CCB) and Bank of Communications (BCM), which constitute the five major state-owned banks in China.
ICBC opened its very first office branch on January 1, 1984 in Beijing as a local state-run bank. It has now become the largest bank in China and the largest bank in the world by total assets, deposits, loans, number of customers and number of employees. In 1999, ICBC opened a branch in Luxembourg which became the European headquarters of the bank in 2011. ICBC (Europe) has established a network covering branches in major European cities, namely Paris, Amsterdam, Brussels, Milan, Madrid, Barcelona, Warsaw and Lisbon.
BOC was founded in 1912 and is the oldest bank in mainland China still in existence. Up to December 31, 2009, it was the second largest lender in China over all and the 5th largest bank in the world by market capitalization value. As of end of 2017, it was the 4th largest bank in the world in terms of assets, ranked after the other three Chinese banks. It has now opened its branches in various countries and regions in the world.
ABC, known as AgBank, is the last of the “Big Four” banks in mainland China. Today’s Agricultural Bank of China was founded in February 1979 and was listed on the Shanghai and Hong Kong stock exchanges in July 2010. Now the bank enjoys 320 million retail customers, 2.7 million corporate clients, and nearly 24,000 branches. It is China’s third largest lender by assets. Also it has established its branches throughout mainland China in addition to other countries and regions.
CCB was founded on October 1, 1954. In 2015, the bank ranks the 2nd in Forbes’ 13th annual Global 2000 ranking of the biggest, most powerful and most valuable companies in the world. Consequently it became the 2nd largest bank in the world by market capitalization and the 6th largest company in the world. Now the bank has built approximately 13,629 domestic branches. In late 2005, CCB made an initial public offering on the Stock Exchange of HongKong. Moreover it has established its overseas branches in many countries.
BCM is the 5th-largest bank in mainland China. Established in 1908, it claims a long history of development. Today, it is amongst the top 5 leading commercial banks in China and has an extensive network of over 2,800 branches covering over 80 major cities. In addition, it has established branch banks in countries and regions worldwide. Among the World’s Top 500 Enterprises listed by Fortune in 2018, it ranked 168th, and entering the World’s Top 500 Enterprises for ten straight years.
Asian Infrastructure Investment Bank
Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank that aims to support the building of infrastructure in the Asia-Pacific region. The proposal for it was first made at the Bo’ao Forum in April 2009.
The initiative was officially launched by Chinese President Xi Jinping on a state visit to Indonesia in October 2013. On October 24, 2014, 21 countries signed a Memorandum of Understanding (MOU) regarding the AIIB in Beijing. Currently the bank has 69 members as well as 24 prospective members from all over the world. It started operation after the agreement entered into force on December 25, 2015. The United Nations has regarded the launch of AIIB as a potential for “scaling up financing for sustainable development” and for improving the global economic governance. The AIIB also received the highest credit ratings from the three biggest rating agencies in the world.
