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FEATURE STORY: The Future of China's Finance Sector
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The Future of China's Finance Sector
By Harold Murphy

BT 201802 Feature story 05金融是现代经济的核心,银行业是金融领域的重要支柱之一。新中国成立60年来,银行业经历了不平凡的光辉历程,对促进国民经济稳健发展发挥了重要作用。1949年《中华人民共和国中央人民政府组织法》明确将中国人民银行纳入政务院的直属单位,确立了其作为国家银行的法定地位。在第一个五年计划建设时期。银行业则实行信用集中原则,中国人民银行编制的综合信贷计划纳入国家经济计划。 1984后,中国工商银行和中国建设银行正式成立,逐步形成以中央银行为核心、以专业银行为主体的银行体系。1995正式实施《商业银行法》,开创商业银行新时代 ;2003年后,我国对国有银行进行股份制改造。后来,我们引进外资银行——根据中国人民银行行长周小川的一份声明,中国金融业缺乏外资竞争,导致国内金融机构“懒散”。我国开放外资进入银行业后,截至2008年底,在华外资金融机构资产总额达到1.3万亿元,有12个国家和地区的银行在华设立28家外商独资银行。银行业蓬勃发展。

不过,中国金融业的前景并不乐观。国际货币基金组织最近警告说,由于公司和住房债务的增长速度加快、企业债务水平高,中国金融业显示出脆弱的迹象。有关中国城市商业银行测试数据显示,33家银行总资产达260亿美元,在国内外金融危机等不利情况冲击下,这些机构的资金会严重不足。

The finance sector of a country truly represents the stage of economic development that the country has achieved, and China is no exception to this rule. China’s finance sector is one of the fastest growing in the world, which has also been backed by the country’s expansionary economic policy. Today, banks in China are expanding their financing of enterprises, lending to the government and increasing deposits from the public.

BT 201802 Feature story 02Brief History of China’s Banking Reforms

Rapid development of China’s finance sectors can be tracked backwards to a few decades ago, when a series of significant reforms started since 1978 which strengthened the position of commercial banks in the country. While the country’s central bank, the People’s Bank of China, has initially exercised functions of both a central bank and offered industrial credits and savings since 1984 it has begun to formally perform only central bank functions by controlling and monitoring macro-economic conditions of the country and supervising the commercial banking system.
 

Since then, the financial system in China has gradually changed with over 120 commercial banks reorganized, initiated and transformed into modern banks that offer a variety of banking services, and the China Banking Regulatory Commission (CBRS) was established in 2003.

BT 201802 Feature story 01Foreign Banks in China

The first foreign-owned banks in China came with the “open door policy” during the mid-1980s, and could offer their services only to foreign companies in China. However, some foreign banks have been allowed to deal with local businesses and residents with China’s candidacy and accession to the World Trade Organization in 2001.
 

Over the past 15 years, China has increased the number of foreign-owned banks that can operate in Chinese cities by offering renminbi-denominated services. Foreign banks in China had over $47 billion assets under control by the end of 2004, and there were around 70 foreign banks operating in China at that time. It was not before 2007 that foreign banks were allowed to issue debit cards in China, which made their services more accessible to the Chinese general public.

BT 201802 Feature story 03Future Developments of China’s Finance Sector

Recently, China has announced that limits on foreign ownership of financial assets, including ownership in commercial banking, asset management and insurance, will be lifted to allow for equal treatment of domestic and foreign investors.
 

Lack of foreign competition in the Chinese finance industry has not benefited its development, and has made domestic finance institutions “lazy”, according to a recent statement by the Governor of the People’s Bank of China, Zhou Xiaochuan.
 

The plan is to lift the cap on foreign equity stakes in Chinese financial companies from the current level of 49 per cent to 51 per cent. The cap should be removed entirely three years after the new legislation takes effect. However, no precise timeline is given on when the changes will be implemented.
 

Furthermore, the plan also includes the elimination of 20 per cent ceiling on ownership by a single foreign investor, as well as the 25 per cent ceiling on the total foreign ownership of a Chinese commercial bank.
 

However, not all are optimistic on the future of China’s financial sector. The IMF has recently warned that China’s financial industry shows signs of fragility due to high level of corporate debt. IMF’s Financial Sector Assessment Report found that these problems were particularly announced outside of the four largest state-owned banks. China’s officials responded that the report doesn’t reflect the real situation in the Chinese finance sector and that banks are well capitalized. Still, IMF suggests that Chinese banks should increase their capital and hold more liquid assets in order to create a buffer that can absorb liquidity crisis.
 

A stress test of Chinese city commercial banks, covering 33 banks with $26 billion in total assets, showed severe undercapitalization of these institutions under adverse scenarios, such as domestic and international financial shocks.

China’s corporate debt is extremely high and is poised at being around 160% of GDP, while the household debt is also rapidly increasing. These developments could create major problems for the country’s financial stability in the coming period.
 

Another problem is that new innovative products in China’s financial sectors have the potential to become very popular basically overnight, which can increase the systematic risk associated with such products, according to the IMF.
 

Banking reforms in the last few decades have created an innovative financial sector in China. Modern commercial banks have replaced the People’s Bank of China in commercial activities, and provide lending and deposit services to companies together with modern banking products. However, the growing debt burden remains a major risk for the stability of China’s financial sector. Corporate and housing debts are growing at extremely high speed, and recent stress tests have shown that many smaller commercial banks are undercapitalized to prevent a liquidity crisis in times of adverse economic shocks.
 

Another major development in China’s financial sector is its opening and liberalization towards foreign capital. Although no exact timeline is provided, plans are that foreign investors will be allowed to increase their investments in China’s commercial banks, wealth management, insurance sector, securities and futures market. The current ceiling is set at 49% of foreign ownership, which is planned to increase first to 51%, and to be completely lifted three to five years after the new legislation takes effect.

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