China’s Financial Reform and Its Impact on International Financial Centers

Abstract

It is accurate to say that before 1976 there were no financial institutions or markets in the People’s Republic of China (PRC), as we understand them in the West. There was only one gigantic bank, the People’s Bank of China (PBC), and numerous small rural credit cooperatives. The PBC served as both a bank for the government and a “commercial bank” for the country. The PBC was established on December 1, 1948, eleven months before the Communist Party came to power. It is, in fact, a ministry-level organization (see Byrd 1983, p. 13). By 1953, all private banks were nationalized, and the PBC became the only bank which had offices throughout the country. Because of government policy, the bank had little to do with the financial markets of the non-communist world. Since 1976, under the program of financial reform which was stimulated by the “four-modernization” policy, a variety of financial institutions and instruments have been gradually developed. However, the PRC’s financial system, to date, still can be characterized as primitive according to western standards.