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2007 | Buch

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Banking in China

verfasst von: Violaine Cousin

Verlag: Palgrave Macmillan UK

Buchreihe : Palgrave Macmillan Studies in Banking and Financial Institutions

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

China's banking system is central to their development. This text offers detailed analysis of the Chinese banking sector, its challenges, reasons for the present form, and the implications for reform. The book interrogates the industry's critical issues, such as financial intermediation, capital and credit risk management, and corporate governance.

Inhaltsverzeichnis

Frontmatter

Setting the Stage

Frontmatter

1. Structure of the Banking System

Abstract

For those acquainted with the Chinese banking industry, it is becoming easier to find positive and forward-looking words to describe developments in the industry. More and more reforms have been introduced and this is at a growing pace; however, Chinese banks still face a number of challenges, such as insufficient capital, government interference, poor risk management practices and large chunks of NPLs.

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Financial Infrastructure

Frontmatter

2. Legal and Regulatory Environment

Abstract

The legal and regulatory environment plays an important role and influences the daily work as well as the work culture in which Chinese banks evolve. This chapter will first describe the regulatory authorities and their work up to now. It will then turn to their supervisory instruments: mainly banking regulations and the interest rate setting environment.

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3. Exit Mechanisms in Banking

Abstract

As mentioned by Wu Xiaoling in an interview (Ye W. and Hu J., 2006), the banking industry in China needs a functioning and efficient exit mechanism: “In a market economy, only if there is a pressure to exit a market, there is a good incentive for operations; [the pressure] improves the healthiness of operations of financial institutions, optimizes the allocation of financial resources, and protects the system from financial instability.”

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4. Role of the State

Abstract

The state¹ has a very influential position and permeates all of the Chinese banking industry. The state is shareholder, lender of last resort and also influences strategic, operational and managerial decisions throughout the banking system.

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5. Foreign Banks in China

Abstract

Since 1991, when the Asian Development Bank acquired a stake in Xiamen International Bank, foreign banks have started buying stakes in the capital of Chinese banks. Most of the deals have taken place in 2004 and 2005, after CBRC raised the ceiling on individual stakes to 20% and overall on foreign stakes to 25% in the capital of any type of Chinese bank (including RCCs) in December 2003.¹ Further to this, in January 2006, CBRC announced that foreign investors can invest in “up-to-now off-limits” A-shares.² Overall, individual foreign institutions’ stakes range between 2 and 20%. As of May 2006, foreign investors had taken equity stakes in 25 Chinese banks (approved) and their equity participations amounted to some USD 20 bin.

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Specific Issues

Frontmatter

6. Financial Intermediation

Abstract

Financial intermediation refers to the activity of (mainly) banks by which they allocate the funds received (deposits) to productive activities and at the same time monitor the behaviour of the receivers of funds (loans). At the same time as the transfer of funds takes place, a transfer and allocation or re-pooling of risks occurs. For the economy to grow, it is important that the allocation of funds is efficient and that financial intermediation runs deep (Cull and Xu, 2000). Poor financial intermediation can be the result of information asymmetries, loans rationing, mispricing of transactions, poor monitoring of behaviour, and so on. All other things being equal, banks should be in a better position to allocate funds than bureaucrats because of their expertise in the analysis and management of risks.

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7. Non-performing Loans

Abstract

A major and long-standing issue in the Chinese banking industry are its non-performing loans (NPLs). This problem is common to most banks, but is particularly acute in banks which are older and where state shares have more weight. The highest NPLs ratios are found in SOCBs, some CCBs and rural financial institutions (Table 7.1).

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8. Capital Adequacy and Risk Management

Abstract

Chinese banks have generally been undercapitalised (Table 8.1). As shown by Brehm and Macht (2005), the ratio of capital to assets (used as a proxy for the Basel I ratio) for Chinese banks declined steadily from 12% in 1985 to its lowest level in 1997 at 2% increasing a little in 2003 to 4.3%. The Basel capital ratio has been published by banks in recent years only and is increasing as banks are more and more conscious of the necessity and the implications of the capital ratio for their business. After their second recapitalisation exercise, CCB and BoC can now boast capital ratios of 11.3 and 10% respectively at the end of 2004. Most JSCBs show capital ratios just above the regulatory required 8%. Smaller banks such as CCBs do not publish their capital ratios and many are thought to be heavily undercapitalised.

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9. Governance and Corruption

Abstract

Another recurring challenge to the Chinese banking system is the system-wide corruption (Table 9.1). This should not be too surprising considering the low remuneration of bank officers and managers as well as the lack of effective internal controls and checks and balances.

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Analysis of Different Bank Types

Frontmatter

10. State-Owned Commercial Banks

Abstract

The four SOCBs¹ are

Industrial and Commercial Bank of China (ICBC)
China Construction Bank (CCB)
Bank of China (BoC) and
Agricultural Bank of China (ABC).

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11. Joint-Stock Commercial Banks

Abstract

The 13 JSCBS include the Bank of Communications (BoComm), China Merchants Bank (Merchants), CITIC Industrial Bank (CITIC), Shanghai Pudong Development Bank (Pudong), China Minsheng Banking Corporation (Minsheng), Industrial Bank, formerly Fujian Industrial Bank (Industrial), China Everbright Bank (Everbright), Guangdong Development Bank (GDB), Huaxia Bank (Huaxia), Hengfeng Bank (Hengfeng), Shenzhen Development Bank (SDB) as well as the two JSCBs established at the end of 2005, Huishang Bank (from a merger of some CCBs in Anhui province) and Bohai Bank (with support from Standard Chartered).

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12. City Commercial Banks

Abstract

City commercial banks (CCBs) are local financial institutions that were set up in the reform era under the aegis of local governments. Most of them are headquartered in urban centres and their development is clearly linked to their narrow scope and environments.

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13. Foreign Banks

Abstract

Up to October 2005, 244 foreign banks in China came from 60 countries and had established 476 operational entities (including branches and representative offices, which represent half that figure). According to statistics published by CBRC, foreign banks had total assets of USD 84.5 bin (CBRC, 2005a). Foreign banks, at the end of 2004, held deposits amounting to CNY 64.1 bin and loans amounting to CNY 267 bin (Xu N. and Wang Z., 2005). Most foreign branches were established in Beijing (13%), Shanghai (28%) and Shenzhen (10%) at the end of the third quarter of 2005 (Xiao Z., 2006).

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14. Rural Credit Cooperatives

Abstract

Rural areas are served by a few formal financial institutions: the ABC, the RCCs, the postal savings system as well as the Agricultural Development Bank of China (ADBC),¹ a policy bank. Their main role is to provide financial services to local farmers and agricultural enterprises and to support the economic development of rural areas. The following will concentrate on RCCs (details of the postal savings system can be found in the annex) which are the most important rural financial institutions (Table 14.1).

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Future Challenges

Frontmatter

15. Retail Banking

Abstract

Since the liberalisation process began in 1978, Chinese banks have already widened the scope of their financial products. While they traditionally lent mainly to relatively large enterprises, target customers have been widened to include smaller and private enterprises as well as consumers. The changing product focus has meant that banks nowadays offer a wider range of loan and investment services. One of the main growth areas in the Chinese banking system is retail banking.

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16. Impact of the New Capital Accord

Abstract

Another major event which could potentially have a strong impact on Chinese banks and their environment is the new capital accord (Basel II). This is mainly due to the fact that Basel II and the whole risk management framework are at a stark contrast to the current Chinese banking reality.

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17. Entry to the World Trade Organisation

Abstract

is the Chinese abbreviation for China’s accession to the World Trade Organisation or WTO (the expression in full being. Taken to the individual meaning of each character, this abbreviation could also mean “enter the world”. What will be the impact of Chinese banks entering the world? Or is the world finding access to Chinese markets through its accession to the WTO?

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Backmatter

Titel: Banking in China
verfasst von: Violaine Cousin
Verlag: Palgrave Macmillan UK
Electronic ISBN: 978-0-230-59584-2
Print ISBN: 978-1-349-28282-1
DOI: https://doi.org/10.1057/9780230595842