Banking in China Book

List of Tables xii

List of Figures xv

List of Abbreviations xvi

Introduction xix

Part I Setting the Stage

1 Structure of the Banking System 3

1.1 Historical developments 4

1.2 Organisation and structure of the banking landscape 5

Financial institutions 5

1.3 Key indicators of the Chinese banking system 8

Geographic scope 11

Banking performance rankings 12

1.4 Reform of the Chinese banking sector 13

Systemic risk 14

Allocation of resources and banking sector reform 14

Impetus for banking sector reform 15

Current reform focus 15

Part II Financial Infrastructure

2 Legal and Regulatory Environment 21

2.1 Regulatory authorities 21

People's Bank of China 21

China Banking Regulatory Commission 23

Regulatory instruments 24

Regulators' independence 26

Other regulatory agencies 27

2.2 Important commercial banking laws and regulations 27

Prudential indicators 31

2.3 Lending and deposit rates 32

2.4 Credit registries 34

2.5 Credit rating industry in China 35

3 Exit Mechanisms in Banking 39

3.1 Deposit insurance 39

3.2 Bankruptcy 41

Bankruptcy of enterprises 41

Proceedings for banks 42

Issues and constraints in current bankruptcy proceedings 44

4 Role of the State 46

4.1 Financial influence 46

4.2 Influence on decision-making 47

4.3 The role of the regulators 50

4.4 Rationale behind the influence of the state 51

5 Foreign Banks in China 53

5.1 Historical developments and rationale behind entry 53

5.2 Critics to the introduction of foreign shareholders 59

5.3 Foreign investors' environment 60

Conclusion 63

Part III Specific Issues

6 Financial Intermediation 67

6.1 Definition and measurement 67

6.2Financial intermediation and financial infrastructure 70

6.3 Enterprises financing 72

State-owned enterprises 73

Private and collective enterprises 74

Importance of banks in financing enterprises 76

6.4 Informal financial intermediation 77

7 Non-performing Loans 81

7.1 Estimating the level of NPLs 82

7.2 Classification standards of NPLs 83

7.3 Reasons for the emergence of NPLs 84

7.4 Resolving the NPL issues 86

7.5 New loan quality 89

7.6 NPLs and systemic risk 93

8 Capital Adequacy and Risk Management 96

8.1 Capital adequacy 96

8.2 New capital adequacy rules 98

8.3 Chinese regulations and international standards - A comparison 102

8.4 Current state of risk management systems in Chinese banks 103

9 Governance and Corruption 106

9.1 Corruption 106

9.2 Corporate governance 108

9.3 Corporate governance regulatory framework in China 111

9.4 Corporate governance in Chinese banks 113

9.5 State ownership and corporate governance 114

Conclusion 117

Part IV Analysis of Different Bank Types

10 State-Owned Commercial Banks 121

10.1 Key indicators and figures 121

10.2 Market share and position 121

10.3 Ownership and enterprise forms 121

10.4 Historical developments 123

10.5 Geographic and business scope 123

10.6 Management 124

10.7 Financial performance 125

10.8 Challenges and opportunities 125

11 Joint-Stock Commercial Banks 128

11.1 Key indicators and figures 128

11.2 Market share and position 128

11.3 Ownership and enterprise forms 130

11.4 Historical developments 130

11.5 Specific regulations and authorities 130

11.6 Geographic and business scope 131

11.7 Management 131

11.8 Financial performance 131

11.9 Challenges and opportunities 132

12 City Commercial Banks 135

12.1 Key indicators and figures 135

12.2 Market share and position 135

12.3 Ownership and enterprise forms 136

12.4 Historical developments 138

12.5 Specific regulations and authorities 139

12.6 Geographic and business scope 139

12.7 Management 140

12.8 Financial performance 141

12.9 Challenges and opportunities 142

13 Foreign Banks 145

13.1 Key indicators and figures 145

13.2 Market share and position 145

13.3 Ownership and enterprise forms 145

13.4 Historical developments 146

13.5 Specific regulations and authorities 146

13.6 Geographic and business scope 147

13.7 Management 148

13.8 Financial performance 148

13.9 Challenges and opportunities 148

14 Rural Credit Cooperatives 150

14.1 Key indicators and figures 150

14.2 Market share and position 151

14.3 Ownership and enterprise forms 151

14.4 Historical developments 153

14.5 Specific regulations and authorities 154

14.6 Geographic and business scope 154

14.7 Management 155

14.8 Financial performance 155

14.9 Reform of RCCs underway 156

14.10 Challenges and opportunities 157

Conclusion 161

Part V Future Challenges

15 Retail Banking 165

15.1 Credit card lending 167

15.2 Automobile finance 169

15.3 Real estate lending 169

16 Impact of the New Capital Accord 171

16.1 Rationale and incentives behind the current implementation schedule 172

Regulators' incentives 173

Banks' incentives 174

16.2 Further implementation of Basel II 175

16.3 Quantitative impact of Basel II on Chinese banks 179

Impact on capital requirements 179

Impact on costs structures in Chinese banks 183

16.4 Qualitative impact of the Basel II accord 185

16.5 Impact of Basel II on the Chinese banking system 188

17 Entry to the World Trade Organisation 191

17.1 Chinese commitments 191

Compliance progress in the banking sector 192

Other barriers to foreign banks' entry 196

National treatment for all 198

17.2 Impact of foreign entry on emerging markets 199

17.3 Impact of banking industry players 200

Likely response of foreign banks 200

Likely response of Chinese banks 203

Impact of WTO entry on authorities 205

17.4 Impact of WTO entry on the banking system 205

Conclusion 208

Part VI Conclusion

Annexes 213

Notes 247

Bibliography 258

Index 290