China's Banking System

China’s Banking System and Chinese Government Control of their Operations

By

Walther Arias

Presented to:

Prof. Badi Sabet

FIN4634 – International Baking

Florida International University

June 8th, 2013

China’s Banking Sector

The Chinese banking sector was almost completely owned by the government and it was isolated from the global economy. Chinese banks were subject to the requirements of their government’s central intended economic policy. Since 1978, the Chinese government has focused on creating a banking system with different types of institutions and agencies that function in diverse markets with clearly stipulated functions. One of the main objectives of the Chinese banking reforms has been to give incentives to the financial institutions to become more aggressive, commercial entities. Such strategy has limited the competition between such institutions and only affects the agencies that perform similar tasks. However, banks in China have not been allowed complete autonomy, and are expected to comply with government directives that who often place strategies to be used by banks to improve their profitability and their solvency.

Different classes of banks are currently operating in China, with different structures and serving different functions. First, the wholly state owned banks. Second, “equitized” commercial banks or banks that were wholly state-owned and were turned into join stock firms in which the government is the major stockholder. Third, includes a mixture of local banks, with municipal governments as principal stockholders. Forth, join-stock commercial banks that were founded after the beginning of the China’s banking reforms and with relatively low levels of government ownership.

The Chinese banking industry was entirely dominated by wholly state-owned banks, some of those banks are: the Bank of China, China Construction Bank and the Agricultural Bank...