China’s economic growth and the modernization of its institutions from purely socialist in nature to those with traits of market economies, was a successful venture. The reforms affected all institutions and all forms of life across the country.
China’s banking system is part of these reforms and is in the midst of a generational program of change as it moves to a more open system that supports China’s emergence into the global economy after decades of communism and state property. The program began in the early 1980s and continues to this day.
Chinese banking structure
The Chinese banking system was once monolithic, with People’s Bank of China (PBoC), sound central bank, as the main entity authorized to conduct operations in the country. In the early 1980s, the government opened up the banking system and authorized five state-owned specialized banks to accept deposits and engage in banking activities. These five specialized banks are the Industrial & Commercial Bank of China (ICBC), the China Construction Bank (CCB), the Bank of China (BoC), the Bank of Communications (BoCom) and the Agricultural Bank of China (ABC) .
In the mid-1990s, the Chinese government established three more banks, each of them dedicated to a specific lending purpose. These policy banks include the Agricultural Development Bank of China (ADBC), the China Development Bank (CDB) and the Export-Import Bank of China.
The specialized banks have all led initial public offerings (IPOs) and have varying degrees of public ownership. Despite these IPOs, the banks are still majority owned by the Chinese government.
China has also authorized a dozen reserve of seals commercial banking institutions and over a hundred cities commercial banks to operate in the country. There are also banks in China dedicated to the rural areas of the country. Foreign banks were also allowed to establish branches in China and make strategic minority investments in many state-owned commercial banks.
The total assets of China’s banking system stood at 288.6 trillion yuan, or $42.7 trillion, as of the end of 2021.
Chinese banking regulations
The main regulatory body that oversees the Chinese banking system is the China Banking Insurance Regulatory Commission (CBIRC), which replaced the China Banking Regulatory Commission (CBRC) in April 2018. The CBIRC is responsible for drafting the rules and regulations governing banking and insurance. sectors in China. It also conducts reviews and supervision of banks and insurers, collects and publishes statistics on the banking system, approves the establishment or expansion of banks, and resolves potential problems. liquidity, solvencyor other problems that may arise in some banks.
The People’s Bank of China also has considerable authority over China’s banking system. In addition to the central bank’s typical responsibility for Monetary Policy and representing the country in an international forum, the role of the PBoC is to reduce global risk and promote stability in the financial system. The PBoC also regulates loans and exchange among banks and oversees the country’s payment and settlement system.
Chinese deposit insurance
Chinese deposit insurance regulations came into effect in May 2015. Deposit insurance is provided to protect depositors against the loss of their funds and to eliminate the possibility of a run on the bank if negative rumors were spreading about problems associated with a particular bank. The agency also aims to help failed banks exit the sector with as little negative impact as possible.
The Central Bank of China reported in April 2021 that it had collected insurance premiums from financial institutions from a total of 4,024 institutions with a balance of 42.38 billion yuan, or 6.27 billion. of dollars.
The Chinese economy has experienced dynamic growth over the past decades and its institutions have been modernized. Economic institutions also gained more independence under a social market economy than under one that was previously based on communist ideals. As these changes continue to take shape, China’s banking system continues to undergo a reform program to shift from public to private ownership and to support the transition of the economy to a form of capitalism, which is expected to take many years.