Abstract
China’s state-owned banking sector’s designation as a strategic sector has seen it experiencing a slower pace of reforms compared with non-financial state enterprises. The reasons for this divergence are historical, being rooted in China’s unhappy experience during the early years of its modern banking history. This chapter charts China’s turbulent banking history, and reviews how the sector responded to the state’s reform policies. Major policies and external circumstances impact the performance of China’s state-holding banks. The major policies are China’s entry into the World Trade Organization in 2001 and the state’s decision to expand its global role around the same time. The external development discussed is the onset of the Global Financial Crisis in late 2008. Some concluding remarks about this sector are offered.
Development of policy through seeking consensus, finding a middle road between extreme positions, and combining market economy with a strong ownership and guidance role for the government. These are key to understanding how the financial system has succeeded in supporting China’s extraordinary growth.
(Stent, 2017: 253)
The available evidence persuades us that government influences, intentional or unintentional, will continue to constrain bank reform, with all the performance weaknesses that such influence implies.
(Dobson & Kashyap, 2006: 105)
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Notes
- 1.
The First Opium War took place between 1839 and 1842 and saw the defeat of the Qing forces by the British. The Treaty of Nanking in 1842 that concluded the war saw the cessation of the island of Hong Kong to the United Kingdom in perpetuity, and it established five treaty ports at Shanghai, Canton, Ningpo, Fuchow, and Amoy. A Second Opium War was fought in 1856–1869 that resulted in the opening of more “treaty ports” to Western powers.
- 2.
“Hubu” was the Ministry of Finance of the Qing Government.
- 3.
Since the Communist Party cooperated with Kuomintang (国民党) to resist the warlord, in Wuhan Government, there were a group of members of the Communist Party joining as the officials.
- 4.
BoCom was established with the capital of 2.5 million “Liang ” by Qing Government in 1908 with 2/5 “Youchuanbu” (邮传部) (Ministry of Postal Service and Transmission of Qing Government) shares and 3/5 private shares.
- 5.
Four banks: the Central Bank, BOC , BoCom , and Peasants Bank of China.
- 6.
The currency reform in 1948 refers to using “Jinyuanquan” (金圆券) to replace “Fabi ” as the fiat currency. “Jinyuanquan” was circulated from August 1948 to July 1949.
- 7.
Strategic Investor refers to the legal person shareholder who subscribes newly issued shares from the issuer and has the long-term cooperation and investment relationships with the issuer. This legal person can be the domestic or foreign enterprises as long as it has capital, technology, management, market and talent advantage which can upgrade the industrial structure, expand the market share for the issuer, strengthen the core competition and innovative capacity for the issuer to acquire profit reward.
- 8.
The holding shareholder refers to its having greater than 50% ownership, and if less than 50% but more than other shareholders’ ownership proportion in the same enterprise or if there are fewer shares than other shareholders had, but exercising control through other shareholders indirectly.
- 9.
Relbanks data shows that for 2016, Chin’s ICBC , CCB, ABC and BOC occupy the first 4 positions in terms of asset holdings 2016 (Relbanks.com, 2017).
- 10.
The administrative levels for public officials were regulated by the Civil Servant Law of the People’s Republic of China which had been approved by the 15th Meeting of the Standing Committee of the 10th National People’s Congress of the People’s Republic of China (The Central People’s Government of the People’s Republic of China, 2005).
- 11.
It shall not exceed 20% of the shares of Chinese financial institution when a single foreign financial institution invests in a Chinese financial institution, and it cannot exceed 25% for the joint shares of multiple foreign financial institutions (China Banking Regulatory Commission, 2003).
- 12.
Since 2012, the NPL ratio had increased gradually again. As the state enterprise reform in 2015 mentioned in Chap. 3, except for serious excess capacity, other indicators for China’s state enterprises’ low profitability were considerable numbers of “zombie enterprises” (mostly state enterprises) and the reported rise in NPLs in China’s big state banks which was caused by those “zombie enterprises” (Rfa.org, 2016). Even the reforms such as supply-side structural reform were conducted for state enterprises during recent years, the positive effect would not be seen so soon in Table 4.5.
- 13.
The average level numbers of capital adequacy ratio (%) of total banks from 2007 to 2016 (from the statistics of China Banking Regulatory Commission, various years) were not showed in Table 4.5.
- 14.
The data was from the statistics of China Banking Regulatory Commission: http://www.cbrc.gov.cn/chinese/home/docView/A676043248BD4BEC896B4DDDFFCDF6D7.html and http://www.cbrc.gov.cn/chinese/home/docView/0C8F35BE17D74D01831FFC991F34D938.html
- 15.
Industrial Bank is one of joint-stock commercial banks.
- 16.
- 17.
However, Huang (in Carnegie 2011) provided an interesting justification for this financial repression. He argued that to the extent that the wealthy lose more from this repression through an inflation tax, the government used this as a progressive form of taxation at a time when few Chinese citizens fell within the tax net.
- 18.
The need for caution in financial liberalization is shared by other Asian countries.
- 19.
- 20.
- 21.
Shadow banking refers to alternative funding that does not show up as loans in banks’ accounts. The most popular, according to PBC, are “entrusted loan agreements and trust loans. Under the former, a company lends money to another firm with the bank as the middleman, while for the latter, banks use money raised from wealth-management products to invest in a trust plan, with the proceeds eventually going to a corporate borrower” (Bloomberg, 2017).
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Li, R., Cheong, K.C. (2019). The State’s Role in a Strategic Industry—China’s Banking Sector. In: China’s State Enterprises. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-0176-6_4
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