Banking System in China Activities of PBC Control currency circulation Managed foreign exchange reserves Set interest rates Collected all deposits and made loans Almost exclusively to state owned enterprise

Three specialized Banks - The Bank of China A subsidiary of PBC Responsible for all foreign exchange and international transactions Agricultural Bank of China (ABC) Set up in 1951 Operated under PBC Dealing with the agricultural side of the economy Collected deposits in rural areas and confining lending to farmers The China Construction Bank (CCB) Established in 1954 A fiscal agent for the Ministry of Finance Control over the administration of funds for major construction projects, in line with the relevant economic plan

Chinese Bank reforms :  Two stages of reform have been undertaken, from 1979 to 1992 and 1993 to present.  Stage one began with the creation of a ‘two- tier’ banking system.  Between 1979 and 1984 the specialized banks were separated from direct control of the PBC/MoF.  Two stages of reform have been undertaken, from 1979 to 1992 and 1993 to present.  Stage one began with the creation of a ‘two- tier’ banking system.  Between 1979 and 1984 the specialized banks were separated from direct control of the PBC/MoF.

In  the Industrial and Commercial Bank of China (ICBC) was established,  To assume the PBC’s deposit taking function  Granting loans to state owned industrial and commercial enterprises in urban areas In  the Industrial and Commercial Bank of China (ICBC) was established,  To assume the PBC’s deposit taking function  Granting loans to state owned industrial and commercial enterprises in urban areas In  The ICBC, the ABC, BOC and CCB were allowed to accept deposits and make loans to households and corporates, via nation- wide branches In  The ICBC, the ABC, BOC and CCB were allowed to accept deposits and make loans to households and corporates, via nation- wide branches

PBC in Officially became the central bank. Assigned the tasks of formulating monetary policy Supervising all financial institutions Because of its continued role in economic development it differed from its western counterparts Officially became the central bank. Assigned the tasks of formulating monetary policy Supervising all financial institutions Because of its continued role in economic development it differed from its western counterparts

Between 1985 and To promote more competition, the Chinese government permitted the establishment of new “small and medium-sized” commercial banks Which initially offered universal banking services to households and firms, mainly in the regions and cities. To promote more competition, the Chinese government permitted the establishment of new “small and medium-sized” commercial banks Which initially offered universal banking services to households and firms, mainly in the regions and cities.

This group included- o The Shenzhen and Guangdong Development Banks o The CITIC Industrial Bank o Bank of Communications o China Merchants Bank o China Everbright Bank o Hua Xia Bank This group included- o The Shenzhen and Guangdong Development Banks o The CITIC Industrial Bank o Bank of Communications o China Merchants Bank o China Everbright Bank o Hua Xia Bank

Changes because of Banking reforms(first stage)- rapid growth in the banking sector’s assets and liabilities Deposits increased by 25 times By 1992 the market share of the state owned banks was still very high(84% of loans & 78% of Deposits) The rural credit cooperatives had higher deposit and loan shares than the small/medium-sized commercial banks Foreign banks had no deposits, and just 1% of the loan maket. rapid growth in the banking sector’s assets and liabilities Deposits increased by 25 times By 1992 the market share of the state owned banks was still very high(84% of loans & 78% of Deposits) The rural credit cooperatives had higher deposit and loan shares than the small/medium-sized commercial banks Foreign banks had no deposits, and just 1% of the loan maket.