1. Banking reforms in China
Mak Chi Hong

2. The Background
Before 1978, China managed the economy by the planning system.
The government budget The state- owned enterprises(SOEs)
The banking system passive
The People’s Bank of China
Not really a bank

3. The Background
After 1978, China changed the capital supply system for SOEs.
It had to borrow money from bank or raise funds in other financial channels.

4. 3 stage of Banking Reforms

5. Banking reforms Stage 1 (1979-1993)
objective: establish a two-tier banking system to replace mono-bank system
First tier: People’s Bank (serving as the central bank)

6. The re-establishment of the four specialized banks
Agricultural Bank of China was re-establisded -Bank of China was detached from People’s Bank of China -Peopl’s Bank of Construction was detached from Ministry of Finance. It was later renamed as Bank of Construction
Setting up Industrial and Commercial Bank to perform the commercial functions of the Peoples’s Bank of China -Assigning People’s Bank of China as the central Bank

7. Problems of the banking system
The actual credit volume often exceeded the quota set by the government plan.
Insufficient Competition
Heavy policy burdens of the specialized banks
Lage amount of non-performing loans e.g. at the end of 1997, the share of non- perfoming loans in total loans was 29.2%in the four big specialized state banks

8. Banking reforms Stage 2 (1994-1999)
Objective:
To differentiate the roles of state banks
Commercialize the specialized banks
Improve the regulation of the banking sector
Enhance competition in the financial market

9. Commercialization of the specialized banks
The 4 state-owned specialized banks were renamed as state-owned commercial banks
9 regional branceds were established to replace the province branches of People’s Bank
The credit quota system for state bank was abandoned.

10. Commercialization of the specialized banks
The central bank stared to strengthen the regulation of the banks -to ensure that 4 banks fulfilled the requirement in capital asequacy ratio -To change the loan classification syste, to one that are based on riskiness

11. Banking reforms Stage 3 (2000-present)
The government has paid more attetion to the financial stability of the banking sector.

12. Set up four asset management companies to take over a total of Rmb 1400 billion of the non-performing loans.
However, it was found 2 years later that the 4 big stated banks still had Rmb 2000billion of non-performing loans

13. The government has followed the strategy
1)Capital injection
2)Shedding of f bad assets
3)Introducing strategic investors
4)Initial public offerings

14. Reason: the foregin investors could bring in
1)Capital
2)Improve the corporate governance of the banks
3)Provide management skill an business strategies
4)Reputations for raising more funds in the subsequent IPO

15. Conclusion
China’s financial sector has been deepened but still narrow

16. Financial deepening: an increase in the ratio of fiancial asset to naitonal income, which is a measure of the extent to which past saving has been trasformed into investment through the intermediation of financial institutions.

17. Financial broading: an increase in the variety of financial institutions and instruments