Skip to main content

Part of the book series: Contributions to Economics ((CE))

  • 496 Accesses

Abstract

Like the Indian banking sector, the banking sector in China is currently undergoing a profound transition.1 Since China will be used to compare the progress and performance of reforms in India, this section attempts to give an overview of relevant aspects of the Chinese banking sector. The focus is on the development of the banking sector, its current structure and the major reforms initiated over the last years. In addition, relevant similarities and differences of the banking sectors of the two countries are discussed, as well as the possibilities and limitations of a comparison.

Throughout this thesis, “China” refers to the People’s Republic of China; the special administrative zones Hong Kong and Macao are not included in the analysis.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. See Lo (2001), p. 16; Staude (2002), p. 5; Wolken (1990), p. 54; Yang (2004), p. 2.

    Google Scholar 

  2. See Chen and Thomas (1999), p. 16; Lardy (1998), p. 60; Lo (2001), p. 16; Nanto and Sinha (2002), p. 472; Wolken (1990), p. 55. The only financial assets available pre-1979 were cash and bank deposits. See Nanto and Sinha (2002), p. 472.

    Google Scholar 

  3. Anderson and Kegels (1998), p. 2.

    Google Scholar 

  4. See Girardin (1997), p. 21; Lardy (1998), p. 61f.; Lo (2001), p. 16; Wolken (1990), p. 55.

    Google Scholar 

  5. In fact, the BOC and CCB were founded as separate entities with a new legal status since they were previously integrated into the PBOC mono-bank structure. See Lardy (1998), p. 62.

    Google Scholar 

  6. See Chen and Thomas (1999), p. 17; Lardy (1998), p. 64; Lowinski and Terberger (2001), p. 5f.; Nanto and Sinha (2002), p. 472; Wolken (1990), p. 57.

    Google Scholar 

  7. See Girardin (1997), p. 21.

    Google Scholar 

  8. See Qian and Weingast (1996), p. 17; Shirai (2002b), p. 21; World Bank (1996a), p. 27.

    Google Scholar 

  9. See Girardin (1997), p. 22; Lo (2001), p. 20; World Bank (1996a), p. 27.

    Google Scholar 

  10. See Chen and Thomas (1999), p. 17; Lo (2001), p. 20; Lowinski and Terberger (2001), p. 9; Nanto and Sinha (2002), p. 472f. In China, the state-owned banks are commonly referred to as “State-owned commercial banks”, whereas in India they are commonly called “Public Sector Banks”.

    Google Scholar 

  11. See Lowinski and Terberger (2001), p. 10; Nanto and Sinha (2002), p. 472f.; World Bank (1996a), p. 27.

    Google Scholar 

  12. See Mo (1999), pp. 106–108 for an overview of the mechanics of the recapitalization.

    Google Scholar 

  13. See Mo (1999), p. 93; Pei and Shirai (2004), pp. 10–12; Staude (2002), p. 10.

    Google Scholar 

  14. See Hope and Hu (2006), p. 38; Lardy (1998), p. 70; Nanto and Sinha (2002), p. 473f.

    Google Scholar 

  15. See Deutsche Bank Research (2004), p. 2; Economist Intelligence Unit (2006), p. 17f.; Woetzel (2003), p. 17f.; Wong and Wong (2001), p. 19. While the WTO agreements grant foreign banks more freedom to conduct business in China, taking advantage of these freedoms is more difficult since the working-capital requirements will be increased six-fold to USD 72 million. See Economist Intelligence Unit (2006), p. 18.

    Google Scholar 

  16. The number of Chinese credit cooperatives varies greatly in the literature. While Garcia-Herrero and Santabarbara (2004) put the number at 36,0000, Shirai (2002b) estimates about 45,000, while Nanto and Sinha (2002) arrive at an even higher figure of 75,000 credit cooperatives. The discrepancies are probably due to the merging of urban credit cooperatives into city commercial banks in the late 1990s. See Bowers, Gibb and Wong (2003), p. 102.

    Google Scholar 

  17. See Garcia-Herrero and Santabarbara (2004), p. 13; Nanto and Sinha (2002), p. 474; Shirai (2002b), p. 20.

    Google Scholar 

  18. See Deutsche Bank Research (2004), p. 4; Garcia-Herrero and Santabarbara (2004), p. 14.

    Google Scholar 

  19. See Chen and Thomas (1999), p. 18; Deutsche Bank Research (2004), p. 4f; Garcia-Herrero and Santabarbara (2004), p. 14.

    Google Scholar 

  20. See Deutsche Bank Research (2004), p. 5; Garcia-Herrero and Santabarbara (2004), p. 15.

    Google Scholar 

  21. See Deutsche Bank Research (2004), p. 6; Lardy (1998), p. 71.

    Google Scholar 

  22. See Deutsche Bank Research (2004), p. 5; Garcia-Herrero and Santabarbara (2004), p. 15; Hope and Hu (2006), p. 9.

    Google Scholar 

  23. See Anderson (2005), p. 11; Anderson (2006), p. 250; International Monetary Fund (2005), p. 200f.; Lardy (1998), pp. 101–105.

    Google Scholar 

  24. See Anderson (2006), p. 246; Holland and Lague (2004), p. 26; International Monetary Fund (2005), p. 194; Lardy (2000), pp. 8–12; Mo (1999), p. 32. The official CRAR figures probably overstate the true level since the amount of nonperforming loans that can be written-off is restricted. See Lardy (2000), p. 8f. In 2005, a further USD 15 billion were used to recapitalize ICBC in preparation for its stock market listing. See Hope and Hu (2006), p. 40.

    Google Scholar 

  25. See DeSombre and Chen (2004), p. 12; Garcia-Herrero and Santabarbara (2004), p. 22f.; Lardy (1998), p. 93; Shirai (2002b), p. 25. Before the adoption of the loan classification system the quantity of provisions for NPLs was linked to the volume of outstanding loans and not their quality. As a consequence, Chinese banks did not have to increase their provisions as the quality of their loan portfolio declined. See Lardy (1998), p. 97.

    Google Scholar 

  26. See Chen and Thomas (1999), p. 19; Deutsche Bank Research (2004), p. 10; Garcia-Herrero and Santabarbara (2004), p. 17; International Monetary Fund (2005), p. 196; Pei and Shirai (2004), p. 7; Setser (2006), p. 18. The four Asset Management Companies were founded in 1999 to deal with the NPL problem. They bought NPLs at face value from the banks in exchange for equity positions in the borrowing firms, and have tried to recover as much as possible from the loans various means including auctions, liquidation, sale of equity, or securitization. The AMCs finance themselves through the issuance of government-backed bonds. See Lardy (2000), p. 12.

    Google Scholar 

  27. See Deutsche Bank Research (2004), p. 8; Garcia-Herrero and Santabarbara (2004), p. 22f.; Shirai (2002b), p. 25.

    Google Scholar 

  28. See Hope and Hu (2006), p. 45; International Monetary Fund (2005), p. 196; Lardy (1998), p. 119 and 122; Pei and Shirai (2004), p. 7. Note: NPLs shown are gross of provisions. Some analysts estimate significantly higher NPL levels. See for example Setser (2006), p. 11.

    Google Scholar 

  29. See Shirai (2002a), p. 21; Shirai (2002b), p. 23.

    Google Scholar 

  30. See Shirai (2002b), p. 23. Between 1993 and 1995 real interest rates were actually negative since deposit and lending rates were set below the inflation rate. The government however subsidized the difference between the inflation rate and the deposit rate, so that the effective real interest rates stood at 0%. See Shirai (2002a), p. 23.

    Google Scholar 

  31. See Barnett (2004), p. 49; Garcia-Herrero and Santabarbara (2004), p. 19; Shirai (2002a), p. 23; Shirai (2002b), p. 23.

    Google Scholar 

  32. See Garcia-Herrero and Santabarbara (2004), p. 19; Shirai (2002a), p. 23.

    Google Scholar 

  33. See Mo (1999), p. 99; Shirai (2002a), p. 21; Shirai (2002b), p. 24. Nonetheless, a significant bias towards providing credit to state-owned enterprises and against private sector undertakings remains. For a discussion see Huang (2006), pp. 289–297.

    Google Scholar 

  34. See Anderson (2005), p. 9; Choi and Kan (2004), p. 11; Kynge (2003), p. 15.

    Google Scholar 

  35. See Bremner (2005), p. 26; Bremner (2006), p. 1.

    Google Scholar 

  36. See for example Business Week (2005) “China & India”; Huang and Khanna (2003) “Can India overtake China?”; The Economist (2005b) “The tiger in front — A survey of India and China”. Henley (2004) points out that “China is a natural comparator for India for obvious geopolitical, economic and demographic reasons. They both have populations in excess of one billion — China with 1.27 billion and India with 1.03 billion people in 2001. [...] on a purchasing power parity (PPP) basis, they are respectively the second and fourth largest economies in the world.” Henley (2004), p. 1041.

    Google Scholar 

  37. Long (2005), p. 3.

    Google Scholar 

  38. See Manor (2005), p. 105; Mukherji (2005), p. 61; The Economist (2005a), p. 11f. Cases in point for the trial and error approach are the gradual and cautious establishment of special economic zones in China during the early reform stages, or the “percolation model” by which reform measures are first tried out in selected localities before they are rolled out at the national level. See Heberer and Schubert (2006), p. 16; Seitz (2000), pp. 245–247.

    Google Scholar 

  39. See Chow (1997), p. 322; Chow (2004), p. 145; Desai (2003), p. 3; Jalan (2005), pp. 64–67; Wu (2006), p. 44.

    Google Scholar 

  40. See Bhalla (1998), p. 152; Mukherji (2005), p. 61; Swamy (2005b), p. 78f.

    Google Scholar 

  41. The peg of the Renminbi to a basket of currencies was introduced in July 2005. Between January 1994 and July 2005, the Renminbi was de-facto fixed to the US-Dollar. See Economist Intelligence Unit (2006), p. 9.

    Google Scholar 

  42. See DeRosa (2005), p. 51f.; Dorn (2006), p. 2; Goldstein (2006), p. 260; Kohli (2001), p. 7; Prasad and Rajan (2006), p. 5; Rajan (2006), p. 272.

    Google Scholar 

  43. See Garcia-Herrero, Gavila and Santabarbara (2005), p. 40; Reserve Bank of India (2005a).

    Google Scholar 

  44. See Huang (2006), p. 289.

    Google Scholar 

  45. See Tsai (2005), p. 123.

    Google Scholar 

  46. Saez (2001), p. 235.

    Google Scholar 

Download references

Rights and permissions

Reprints and permissions

Copyright information

© 2008 Physica-Verlag Heidelberg

About this chapter

Cite this chapter

(2008). The Chinese banking sector. In: Banking Sector Liberalization in India. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-1982-3_3

Download citation

Publish with us

Policies and ethics