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Chinese Banking System - Detailed Overview

What is the Chinese Banking System?

Last updated date: 18th Mar 2023
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Chinese banking system explained in brief


Chinese Banking System Explained in Brief


The Chinese banking system is pivotal when allocating money to investment possibilities. As the Chinese economy has developed over the last decade, so has the country's financial sector, to the point that some of the biggest banks in the world are now headquartered in China. Banks in China have grown increasingly business-focused over the last several years, yet the central government still has a significant say in their operations. This article closely examines the Chinese banking industry, exploring its main features and examining its size and composition. 


System of Chinese Banks


The system of Banking law in china explained


The System of Banking Law in China Explained


Historically, the People's Bank of China (PBoC) was the only Chinese financial institution permitted to do business. However, the banking system was liberalised in the early 1980s, allowing five state-owned speciality banks to begin accepting deposits and banking activities. The Industrial and Commercial Bank of China (ICBC), the China Construction Bank (CCB), the Bank of China (BoC), the Bank of Communications (BoC), and the Agricultural Bank of China are the five specialised banks in China (ABC).


In the middle of the last century, the government of China established three different banks, each of which caters to a different kind of borrower. The ADBC, CDB, and ECB are all policy-making financial institutions in China. These specialist banks have all gone public via IPOs, but the public's stake in each differs. Moreover, even after these IPOs, the Chinese government retains control of the banks.


The Chinese government has authorised the operation of over a hundred city commercial banks and a dozen joint-stock commercial banking organisations. As with urban regions, rural communities in China have access to their banks. In addition, according to China's banking news, many state-owned commercial banks in China now accept strategic minority interests from foreign banks, and foreign banks are permitted to set up branches in the country.


By the end of 2021, the total assets of the Chinese banking sector amounted to 288.6 trillion yuan, or $42.7 trillion.


Banking Law in China


Banking law in china explained


Banking Law in China Explained


The China Banking Regulatory Commission (CBRC) was superseded in April 2018 by the China Banking Insurance Regulatory Commission (CBIRC), the primary regulatory agency responsible for overseeing the Chinese banking industry. The China Banking and Insurance Regulatory Commission (CBIRC) is responsible for formulating the laws and guidelines that apply to these industries in China. Furthermore, it authorises the formation or growth of banks and deals with any liquidity, solvency, or other issues that may arise at individual banks. It performs exams and monitoring of banks and insurers.


To a large extent, the People's Bank of China also controls the Chinese banking industry. The People's Bank of China (PBoC) is charged with ensuring the safety and soundness of the financial system while also carrying out the traditional duties of a central bank, such as setting monetary policy and governing the people abroad. Besides overseeing the settlement and payment system, the PBoC controls interbank lending and foreign exchange.


Banking in China: Guaranteed Deposits

In May 2015, new laws regarding deposit insurance were implemented in China. Banks provide deposit insurance to customers to prevent them from losing their money and to prevent a "run on the bank" if rumours of trouble at the bank spread. The agency will also facilitate the orderly liquidation of bankrupt financial institutions.


In April 2021, the Chinese Central Bank received insurance premiums from 4,024 financial institutions, totalling 42.38 billion yuan ($6.27 billion).


Conclusion

China's economy and institutions have developed rapidly during the last several decades. Underneath a social market economy, economic institutions have greater autonomy than in a communist-style economy. The Chinese banking sector is undergoing a reform program to shift to private management and to facilitate the gradual transition to a capitalist economic model, a process projected to take several years.

FAQs on Chinese Banking System - Detailed Overview

1. How stable is China's financial system?

It is possible to divide the system into two levels: the People's Bank of China (PBOC) and the other commercial banks. These financial institutions may be broken down into the following categories: commercial banks with joint stock, commercial banks formed as companies, banks of national interest, local banks, and banks founded in other nations. Each state's four central commercial banks are collectively referred to as the "Big Four" in that state. The organisational structure of commercial banks is similar to that of companies.

2. Why can't the Chinese obtain bank refunds?

To avoid a "bank run," in which a significant number of depositors attempt to withdraw their money all at once because of concern that the bank won't be able to reimburse them in full and on time, some local Chinese banks have frozen withdrawals. The widespread Covid-19 virus and the subsequent real estate crash exacerbated the country's underlying problems. Some analysts have drawn parallels between the current crisis and the one that began in 2008 when the US housing market bubble burst. Alarm signalling the start of the violent suppression of protests.

3. Does the Chinese government own the banks?

Through equity interests of over 60-90% in each of the five biggest commercial banks, the Chinese government owns the majority of banks that account for more than half of the assets of the Chinese system. There are three policy banks, all wholly owned by the government, plus several smaller commercial banks in which the government has a majority or complete ownership. The Chinese government is the bank's biggest shareholder, and it picks the bank's top executives.