Abbreviations Chinese Financial Markets C: People's Bank of China By Zhang Xiao BOC: Bank of China ICBC: Industrial and Commercial Bank of China CCB: China Construction Bank Lecture 3: Reform of Chinas Banking Syste BoCom: Bank of Communication PSBC: Postal Savings Bank of China JSCB: Joint-stock Commercial Banks Abbreviations Topics Covered AMC: Asset Management Company History of Chinas Banking System SAFE: State Administration of Foreign Exchange CBRC: China Banking Regulatory Committee Current Banking System in China CIRC: China Insurance Regulatory Committee Reform of socbs CSRC: China Security Regulatory Committee MOF: Ministry of Finance CIC: China Investment Co SOE. State-owned NPL: Non-performing Loans Origin of Banks in Ancient China Bank rudiment emerged 1000 years ago( Tang 3.1 History of Chinas Banking System Institutions providing deposit and loans, money exchange, trade financing formed up and developed in Song, Ming and Qing e village): silver standard The worlds first paper-printed currency was innovated in Song era(960-1279). The financial system adopted Partnerships in money villages formed in early 1900s
1 Chinese Financial Markets By Zhang Xiaorong Lecture 3: Reform of China’s Banking System 3-1 3-2 Abbreviations — PBC: People’s Bank of China — BOC: Bank of China — ICBC: Industrial and Commercial Bank of China — CCB: China Construction Bank — ABC:Agricultural Bank of China — BoCom: Bank of Communication — PSBC: Postal Savings Bank of China — SOCB: State-owned Commercial Banks — JSCB: Joint-stock Commercial Banks 3-3 Abbreviations — AMC:Asset Management Company — SAFE: State Administration of Foreign Exchange — CBRC: China Banking Regulatory Committee — CIRC: China Insurance Regulatory Committee — CSRC: China Security Regulatory Committee — MOF: Ministry of Finance — Huijin: China Huijin Investment Co. — CIC: China Investment Co. — SOE: State-owned Enterprises — NPL: Non-performing Loans Topics Covered — History of China’s Banking System — Current Banking System in China — Reform of SOCBs 3-4 3.1 History of China’s Banking System 3-5 3-6 Origin of Banks in Ancient China — Bank rudiment emerged 1000 years ago (Tang era, 618-907) — Institutions providing deposit and loans, money exchange, trade financing formed up and developed in Song, Ming and Qing eras — Piaohao (bills shop) vs. Qianzhuang (money village);silver standard — The world's first paper-printed currency was innovated in Song era (960-1279). — The financial system adopted Partnerships in money villages formed in early 1900s
Qianzhuang(Money village) in Government Banks Qing Era 国 The first Chinese-owned bank, Imperial Bank of China, was founded in Shanghai in 1897. in China that modeled The building was constructed in 1906, Bund 6. Government Banks Government Banks Before 949 Before 949 Chinas first central bank was established as the Bank of Communications was organized by the Bank of the board of revenue in 905 Ministry of Posts and Communications in 1908 The name was changed to the Great Qing It was chartered as"the bank for developing the Government Bank(Daqing Bank) in 1908 country s ind Daqing Bank's note was granted exclusive The bank's aim was to unify funding for privilege to be used in all public and private steamship lines, railways, as well as telegraph fund transfers, including tax payments and debt and postal facilities settlements The bank opened its first Hong Kong Branch on Following the Xinhai Revolution of 1911, Daqing 27 November 1934 Bank was renamed the bank of china Government Banks Private Banks in China Before 949 Before 949 The Central Bank of Republic of China was Private banks appeared in the late Qing, and originally established in 1924 in guangzhou gradually developed in the 1920s. It took over the role of central bank from the Till 1927. there were 343 domestic banks in Bank of China in 1928 after the northern China, in which 62 were in Shanghai Expedition, and moved the headquarter t In late 1920s and early 1930s, private banks extended their business in syndicated industrial loans and offering loans to government to Taiwan in 1949 The bank was reestablished in 96I and took 49-52)after the civ ver the role of central bank from the bank of war,private banks were completely Taiwan nationalized and consolidated 2
2 3-7 Qianzhuang (Money Village) in Qing Era 3-8 Government Banks Before 1949 — The first Chinese-owned bank, Imperial Bank of China, was founded in Shanghai in 1897. — It was also the first bank in China that modeled onWestern banks and banking practices. — The building was constructed in 1906, Bund 6. Government Banks Before 1949 — China's first central bank was established as the Bank of the Board of Revenue in 1905. — The name was changed to the Great Qing Government Bank (Daqing Bank) in I908. — Daqing Bank's note was granted exclusive privilege to be used in all public and private fund transfers, including tax payments and debt settlements. — Following the Xinhai Revolution of 1911, Daqing Bank was renamed the Bank of China. 3-9 Government Banks Before 1949 — Bank of Communications was organized by the Ministry of Posts and Communications in 1908. — It was chartered as "the bank for developing the country's industries". — The bank's aim was to unify funding for steamship lines,railways, as well as telegraph and postal facilities. — The bank opened its first Hong Kong Branch on 27 November 1934. 3-10 3-11 Government Banks Before 1949 — The Central Bank of Republic of China was originally established in 1924 in Guangzhou. — It took over the role of central bank from the Bank of China in 1928 after the Northern Expedition, and moved the headquarter to Shanghai. — The bank moved along with the Kuomintang government to Taiwan in 1949. — The bank was reestablished in 1961 and took over the role of central bank from the Bank of Taiwan. 3-12 Private Banks in China Before 1949 — Private banks appeared in the late Qing, and gradually developed in the 1920s. — Till 1927,there were 343 domestic banks in China, in which 62 were in Shanghai. — In late 1920s and early 1930s, private banks extended their business in scope, making syndicated industrial loans and offering loans to rural areas. — In the recovery period (1949–52) after the civil war, private banks were completely nationalized and consolidated
Foreign Banks in China Foreign Banks in China Before 949 Before 949 First foreign bank(Eastern Bank of Britain came to China in 847 From 1847 to 1860, more than 10 foreign banks France and the US Chartered Bank established the branch in 858 HSBC was established in 1865 in Shangha Citibank established a branch in 902 The HSBC building(Bund 12) By l936, 84 foreign banks in China in total, 29 in now occupied by the Headquarter of Shanghai h eign Banks in China Foreign Banks in China Before 949 Before 949 Sino-Russian Righteousness Victory Bank(华俄 道胜银行) opened the shanghai branch in1896 The Mackellar Bank( Chartered Bank) The building( Bund 15)served the central bank Building(Bund 18) uilding after 1928 Banking System 1953-1978 Banking System 1953-1978 PBC had sole responsibility for issuing currency Bank of China handled all dealings in foreign d controlling the money supply, and served as onsible for allocating the the government treasury, the holder of countrys foreign exchange reserves, arranging erprise deposits, the main source of credit foreign loans, setting exchange rates for China's or economic units, the clearing nancial transactions, the national savings bank, carrying out all financial transactions with and a ubiquitous monitor of economic activities foreign firms and individuals. Bank of Communication merged to PBC and CCB in 195Bexcept the business in Hong Kong
3 3-13 Foreign Banks in China Before 1949 — First foreign bank (Eastern Bank of Britain) came to China in 1847. — From 1847 to 1860,more than 10 foreign banks came to China from Germany, Japan, Russia, France and the US — Chartered Bank established the branch in 1858 — HSBC was established in 1865 in Shanghai — Citibank established a branch in 1902 — By1936, 84 foreign banks in China in total, 29 in Shanghai Foreign Banks in China Before 1949 3-14 — The HSBC building (Bund 12) — now occupied by the Headquarter of Shanghai Pudong Development Bank Foreign Banks in China Before 1949 — Sino-Russian RighteousnessVictory Bank(华俄 道胜银行) opened the Shanghai branch in 1896 — The building (Bund 15) served the central bank building after 1928 3-15 Foreign Banks in China Before 1949 3-16 — The Mackellar Bank (Chartered Bank) Building (Bund 18) Banking System 1953-1978 — PBC had sole responsibility for issuing currency and controlling the money supply, and served as the government treasury, the holder of enterprise deposits, the main source of credit for economic units,the clearing center for financial transactions, the national savings bank, and a ubiquitous monitor of economic activities. 3-17 Banking System 1953-1978 — Bank of China handled all dealings in foreign exchange, and was responsible for allocating the country's foreign exchange reserves, arranging foreign loans,setting exchange rates for China's currency, issuing letters of credit, and generally carrying out all financial transactions with foreign firms and individuals. — Bank of Communication merged to PBC and CCB in 1958except the business in Hong Kong. 3-18
Banking System 1953-1978 The Agricultural Bank was established in th 1955 to facilitate financial operations in the 3.2: Current Banking System rural areas and provide financial support to agricultural units, merged with PBC in 1957,re- established in 1963, and merged with PBC ag in 1965 The People's Construction Bank was affiliated to MOF and managed state appropriations and loans for capital construction The Banking System Reform The Banking System Reform since 978 since 978 m State-Owned Specialized Banks(1978-1994) ABC reestablished in 979 o People's Construction Bank was separated from inistry of Finance in 1979, and became directly supervised by the State Council ICBC separated from PBC on Jan. Is1984 Big four state-owned specialized commercial banks were formed in providing different services PBC started to function as a central bank Plural-banking system started The Banking System Reform Banking System Reform since since 978 l978 State-Owned Specialized Banks(1978-1994) State-Owned Commercial Banks(1994-2003) es began to emerge in the mid 80s Agricultural Development Bank the Export-In supplementary banking to support economic growth Bank of China)were formed in1994 Rural credit cooperatives are small, collectively- People's Construction Bank was renamed as china dled In 1995. the PBCs central bank status was legally milies, villages, and cooperative organizations. Urban credit cooperatives provide small-scale PBC still supervised the commercial banks: financial financial services to individual and collective onstruction: improving internal management; enterprises that sp in urban areas external regulation reinforced 4
4 Banking System 1953-1978 — The Agricultural Bank was established in the 1955 to facilitate financial operations in the rural areas and provide financial support to agricultural units, merged with PBC in 1957,reestablished in 1963, and merged with PBC again in 1965. — The People's Construction Bank was affiliated to MOF and managed state appropriations and loans for capital construction. 3-19 3.2 : Current Banking System 3-20 The Banking System Reform since 1978 3-21 3-22 The Banking System Reform since 1978 — State-Owned Specialized Banks(1978－1994) ◦ ABC reestablished in 1979 ◦ People’s Construction Bank was separated from Ministry of Finance in 1979, and became directly supervised by the State Council ◦ ICBC separated from PBC on Jan.1st 1984 ◦ Big four state-owned specialized commercial banks were formed in providing different services ◦ The State Council approved re-establishment of BoCom in 1986, headquarter in Shanghai ◦ PBC started to function as a central bank ◦ Plural-banking system started 3-23 The Banking System Reform since 1978 — State-Owned Specialized Banks(1978－1994) ◦ Rural credit cooperatives and Urban credit cooperatives began to emerge in the mid 80s as supplementary banking to support economic growth. ◦ Rural credit cooperatives are small, collectivelyowned savings and lending organizations that handled deposits and short-term loans for individual farm families, villages, and cooperative organizations. ◦ Urban credit cooperatives provide small-scale financial services to individual and collective enterprises that sprang up in urban areas. 3-24 Banking System Reform since 1978 — State-Owned Commercial Banks(1994－2003) ◦ Three policy banks (China Development Bank, China Agricultural Development Bank, the Export-Import Bank of China) were formed in1994 ◦ People’s Construction Bank was renamed as China Construction Bank in 1996 ◦ In 1995,the PBC's central bank status was legally confirmed ◦ PBC still supervised the commercial banks: financial reconstruction; improving internal management; external regulation reinforced
Banking System Reform since 1978 Current Banking System State-Holding Joint Stock Commercial Banks Central bank People's Bank of china f banking system reform is to transform state wned commercial banks to state-holding joint- Banking Institutions stock banks BOC and ccB were chosen as two pilot banks CBRC Instituton BoCom got listed in HKSE in 2005, became state- e After financial reconstruction and introduction of Self-discipline rategic investors, all big 5 are now listed in HKSE China Banking Association nstitution Current Banking System Policy Banks China Development Bank 44 City Commercial Banis State Council The major task is to provide long-term financing for key projects and supportiv 80o town andvilage bank construction in infrastructure and basic and pillar industries The bank was reformed in 2008 with $20 hina Develooment bank corporation Policy Banks Policy bank The Export-Import Bank of China Established in 1994, directly supervised by the State council State council lectronic products and high-tech products, cy credit businesses specified by the contracts Most of the funds come from the central bank It also accepts government concession loans and onlends loans of foreign government and business and overseas financing international financial institutions 5
5 Banking System Reform since 1978 — State-Holding Joint Stock Commercial Banks ◦ In 2002, the State Council confirmed the major task of banking system reform is to transform stateowned commercial banks to state-holding jointstock banks ◦ BOC and CCB were chosen as two pilot banks, financed with $45 billion in the end of 2003 ◦ BoCom got listed in HKSE in 2005, became stateowned in 2008 with transfer of equity to MOF ◦ After financial reconstruction and introduction of strategic investors, all big 5 are now listed in HKSE and SSE 3-25 Current Banking System 3-26 Central bank People’s Bank of China Regulatory institution CBRC China Banking Association Self-discipline institution Banking Institutions Non-banking Institutions Current Banking System 3-27 Banking System in China 5 State-owned Commercial Banks 12 Joint Stock Commercial Banks 144 City Commercial Banks 3 Policy Banks 337 Rural Commercial Banks 147 Rural Cooperative Banks 1927 Rural Credit Cooperatives 42 Incorporates Foreign Banks 67Trust and Investment Companies 4 Asset Mgt. Companies 150 Finance Companies 20 Financial Leasing Companies 16Auto Finance Companies 1 Postal Saving Bank As of end 2012 4 Consuming Finance Companies 5 Money Brokerage Firms 800+ Town andVillage Banks Policy Banks — China Development Bank ◦ Established in 1994, directly supervised by the State Council ◦ The major task is to provide long-term financing for key projects and supportive construction in infrastructure and basic and pillar industries ◦ The bank was reformed in 2008 with $20 billion capital injection and renamed as “China Development Bank Corporation”. 3-28 Policy Banks — Agricultural Development Bank of China ◦ Established in 1994, directly supervised by the State Council ◦ It raises funds for agricultural policy businesses and undertake the agricultural policy credit businesses specified by the central government ◦ Most of the funds come from the central bank lending,supplemented by deposits from business and overseas financing. 3-29 Policy Banks — The Export-Import Bank of China ◦ Established in 1994, directly supervised by the State Council ◦ It finances the exporting of machinery and electronic products and high-tech products, and supports overseas constructions contracts. ◦ It also accepts government concession loans and onlends loans of foreign government and international financial institutions. 3-30