Contents Preface Fig Tables Abbreviations CHAPTER ONE Introduction CHAPTER TWO A Brief History of Banking-System Reform in China Through the Mid-1990s The Gradual Implementation of Reform The First Stage of Reform(Establishing Various Kinds of Banks) The Second Stage of Reform(Implementing Market-Oriented Policies) CHAPTER THREE Further Reform for a Market-Oriented Economy Changes in the Economic Environment Surrounding China Concerns About the WTo accession The asian financial crisis Formal Participation in the BIS First National Financial Work Conference Abolishment of the Credit Plan apital Injection by the Government Establishment of AMCs and the Disposal of NPLs Improvement of the Accounting System Results of reform WTO Commitments Moving Toward a Market-Oriented Banking System Second Capital Injection by the Government Disposal of NPLs Using Market Mechanisms Introduction of Foreign Strategic Investors Tax Exemptions Organizational Restructuring Public Listing
v Contents Preface ........................................................................................................... iii Figures ........................................................................................................... vii Tables ............................................................................................................ ix Abbreviations................................................................................................... xi CHAPTER ONE Introduction ..................................................................................................... 1 CHAPTER TWO A Brief History of Banking-System Reform in China Through the Mid-1990s.................... 3 The Gradual Implementation of Reform...................................................................... 3 The First Stage of Reform (Establishing Various Kinds of Banks)......................................... 7 The Second Stage of Reform (Implementing Market-Oriented Policies)................................. 13 CHAPTER THREE Further Reform for a Market-Oriented Economy ....................................................... 17 Changes in the Economic Environment Surrounding China ............................................. 17 Concerns About the WTO Accession...................................................................... 17 The Asian Financial Crisis ................................................................................... 18 Formal Participation in the BIS............................................................................. 18 First National Financial Work Conference .................................................................. 19 Abolishment of the Credit Plan ............................................................................. 19 Capital Injection by the Government ...................................................................... 19 Establishment of AMCs and the Disposal of NPLs ..................................................... 20 Improvement of the Accounting System .................................................................. 23 Results of Reform............................................................................................ 23 WTO Commitments.......................................................................................... 23 Moving Toward a Market-Oriented Banking System ...................................................... 25 Second Capital Injection by the Government ............................................................ 27 Disposal of NPLs Using Market Mechanisms ............................................................ 31 Introduction of Foreign Strategic Investors............................................................... 34 Tax Exemptions ............................................................................................... 35 Organizational Restructuring ............................................................................... 35 Public Listing.................................................................................................. 35
vi Banking System Reform in China: The Challenges of Moving Toward a Market-Oriented Economy CHAPTER FOUR The Current Situation of Major Commercial Banks Size of assets Quality of Assets Capital Adequat 46 Profitability CHAPTER FIVE Issues and Challenges in the Further Development of the Chinese Banking System A Large volume of NPls Implementation of Basel Inefficient Allocation of Fund Resources Enhancement of Corporate Governance Establishment of Laws and Regulations Fraud and Corruption The Deregulation of Financial Markets Competition with Foreign Bar Merger and Closure of Fragile Deposit-Taking Institutions Information Sharing SI Conclusion Bibliography
vi Banking System Reform in China: The Challenges of Moving Toward a Market-Oriented Economy CHAPTER FOUR The Current Situation of Major Commercial Banks................................................... 43 Size of Assets.................................................................................................... 44 Quality of Assets ................................................................................................ 45 Capital Adequacy .............................................................................................. 46 Profitability ..................................................................................................... 46 CHAPTER FIVE Issues and Challenges in the Further Development of the Chinese Banking System ............ 51 A Large Volume of NPLs....................................................................................... 51 Implementation of Basel II.................................................................................... 54 Inefficient Allocation of Fund Resources.................................................................... 56 Enhancement of Corporate Governance..................................................................... 57 Establishment of Laws and Regulations...................................................................... 59 Fraud and Corruption ......................................................................................... 60 The Deregulation of Financial Markets ..................................................................... 60 Competition with Foreign Banks ............................................................................. 61 Merger and Closure of Fragile Deposit-Taking Institutions ............................................... 63 Information Sharing ............................................................................................ 63 CHAPTER SIX Conclusion ...................................................................................................... 65 Bibliography .................................................................................................... 67
Fiqures 2.1 Structure of Financial Institutions in China, May 2007 2.2 Structure of the Nonfinancial Business Sectors Liabilities 2.3 Asset Distribution of Deposit-Taking Institutions, March 2007 2.4 Changes in the Real GDP Growth and CPI 2.5 Share of SOEs in Industrial Production and Employment 8 2.6 Outline of the Banking-System Reform in China 2. 7 The Money Supply(M2 base) and Its Ratio to the gDP 11 3.1 Changes in Balance Sheets of AMCs, PBC, and SOCBs as to NPL Disposal During 1999-2000 3.3 Trend of Oficial Foreign Exchange Reserves in AT CBs 3. 2 Changes in Balance Sheets of SAFE, Huijin, and SO 3.4 Number of Branches and Employees of SOCBs 3.5 Trend of Shanghai Stock Exchange Composite Index 4. 1 NPL Ratios of Major Commercial Banks 5.1 Amount of NPLs and NPL Ratio at Major Commercial Banks..... 5.2 Movement of RMB Exchange Rate to U.S. Dollars
vii Figures 2.1 Structure of Financial Institutions in China, May 2007 ...................................... 4 2.2 Structure of the Nonfinancial Business Sectors’ Liabilities.................................... 5 2.3 Asset Distribution of Deposit-Taking Institutions, March 2007 ............................. 5 2.4 Changes in the Real GDP Growth and CPI .................................................... 7 2.5 Share of SOEs in Industrial Production and Employment .................................... 8 2.6 Outline of the Banking-System Reform in China.............................................. 9 2.7 The Money Supply (M2 base) and Its Ratio to the GDP ..................................... 11 3.1 Changes in Balance Sheets of AMCs, PBC, and SOCBs as to NPL Disposal During 1999–2000..................................................................... 21 3.2 Changes in Balance Sheets of SAFE, Huijin, and SOCBs ................................... 29 3.3 Trend of Official Foreign Exchange Reserves in Asia ......................................... 31 3.4 Number of Branches and Employees of SOCBs .............................................. 38 3.5 Trend of Shanghai Stock Exchange Composite Index ........................................ 39 4.1 NPL Ratios of Major Commercial Banks ...................................................... 45 5.1 Amount of NPLs and NPL Ratio at Major Commercial Banks............................. 52 5.2 Movement of RMB Exchange Rate to U.S. Dollars........................................... 61
