Abstract
This chapter sets the scene for the rest of the book by describing the structure of China’s bank-dominated financial system in the 2000s. We focus on six key features: (1) Banks were by far the dominant source of external finance for firms and households. (2) Bank deposits made up most of the financial assets held by households—not just of liquid assets, but of all financial assets. (3) For households, shares were the main alternative financial asset. (4) Non-financial firms accumulated deposits in amounts comparable to households. (5) The banking system was highly concentrated. (6) An interbank market, fostered by authorities, bridged deposit-loan imbalances, and helped banks to manage liquidity.
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Notes
- 1.
Aggregate financing is unfortunately not a complete measure of the external financing of enterprises and households. It excludes foreign direct investment. It also excludes financing by and to government. Given the blurred boundaries between state and enterprises in China, this calls for caution. For example, local government financing vehicles are counted as enterprises, but local governments themselves are not. When, in 2015, the latter issued a large volume of bonds to repay the debt of the former, aggregate financing stocks declined substantially but somewhat arbitrarily (PBC 2015). But these issues are not important for the point being made here—that banks dominated the provision of finance in the 2000s. The measure is introduced and described by PBC (2011, pp. 5–6). Both stock (outstanding financing) and flow (net new financing) figures are produced.
- 2.
Data from China Central Depository & Clearing Co./CEIC series: ‘Composition of bond held by investor’.
- 3.
For comparison, using figures from the same period, this is much higher not only than in countries with ‘market based’ financial systems (US: 11.6%; UK: 23.1%; Australia: 17.4%), but also countries with ‘bank-centred’ financial systems (Germany: 35.2%; Japan: 48.3%). (OECD [2019] figures for 2005. Note these figures include household holdings of currency as well as deposits, but currency holdings are likely to have been minimal.)
- 4.
In 2004, the National Social Security Fund held 18% of its assets in shares—though some of this too went to the banks, in the form of large equity stakes (Guo 2007, p. 155). By mid-decade, insurance companies were only dipping their toes in the sharemarket, encouraged by officials: In September 2005 less than one per cent of reserves were held in shares directly, but a further 8% went into securities funds (Cao and Ma 2007, p. 236).
- 5.
Zeng (2007) provides an overview of the Chinese banking system at mid-decade.
- 6.
Some sources categorise the Bank of Communications with the ‘large state-owned banks’ on account of its size, and some with the ‘shareholding banks’, due to its legal designation. The public listings of the ‘Big Four’, and injections of private capital, blurred the boundaries between them and the ‘shareholding banks’, while state-owned entities owned much of the Bank of Communications’s stock. We include it in the former category because that is where official statistics now include it. In December 2005, the month of the data in Table 2.4, it held 3.6% of total banking system assets, making it much smaller than the average ‘large commercial bank’ but much bigger than the average ‘shareholding commercial bank’.
- 7.
Also, at the fringes and statistically invisible, a substantial informal banking system (Tsai 2002).
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Beggs, M., Deer, L. (2019). A Bank-Dominated Financial System. In: Remaking Monetary Policy in China. Palgrave Pivot, Singapore. https://doi.org/10.1007/978-981-13-9726-4_2
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DOI: https://doi.org/10.1007/978-981-13-9726-4_2
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