Banking in China

Due to structural weaknesses of traditional Chinese law, Chinese financial institutions focused primarily on commercial banking based on close familial and personal relationships, and their working capital was primarily based on the float from short-term money transfers rather than long-term demand deposits.

From the time of the Taiping Rebellion, when transportation routes between the capital and the provinces were cut off, piaohao began involved with the delivery of government tax revenue.

Piaohao grew by taking on a role in advancing funds and arranging foreign loans for provincial governments, issuing notes, and running regional treasuries.

When Western banks first entered China, they issued "chop loans" (caipiao) to the qianzhuang, who would then lend this money to Chinese merchants who used it to purchase goods from foreign firms.

[6] British and other European banks entered China around the middle of the nineteenth century to service the growing number of Western trade firms.

Intended as a replacement for all existing banknotes, the Da Qing Bank's note was granted exclusive privilege to be used in all public and private fund transfers, including tax payments and debt settlements.

In that year, the Regulations of Banking Registration was issued by the Ministry of Revenue, which continued to have effect well after the fall of the Qing dynasty.

In the period of recovery after the Chinese civil war (1949–52), the People's Bank of China moved very effectively to halt raging inflation and bring the nation's finances under central control.

The banking system was centralized early on under the Ministry of Finance, which exercised firm control over all financial services, credit, and the money supply.

Although the bank overlapped in function with the Ministry of Finance and lost many of its responsibilities during the Cultural Revolution, in the 1970s it was restored to its leading position.

Rural credit cooperatives were small, collectively owned savings and lending organizations that were the main source of small-scale financial services at the local level in the countryside.

As commercial opportunities grew in the reform period, the thousands of individual and collective enterprises that sprang up in urban areas created a need for small-scale financial services that the formal banks were not prepared to meet.

Small stock exchanges began operations somewhat tentatively in Shenyang, Liaoning Province, in August 1986 and in Shanghai in September 1986.

Throughout the history of the People's Republic, the banking system has exerted close control over financial transactions and the money supply.

All government departments, publicly and collectively owned economic units, and social, political, military, and educational organizations were required to hold their financial balances as bank deposits.

Since 1949 China's leaders have urged the Chinese people to build up personal savings accounts to reduce the demand for consumer goods and increase the amount of capital available for investment.

[4]: 13 In 2020, the 2020 Work Plan made it so Hong Kong residents, under a pilot program, would be able to open personal bank accounts in the Guangdong province.

The PBOC maintains the banking sector's payment, clearing and settlement systems, and manages official foreign exchange and gold reserves.

The PBC does not have central bank independence and is politically required to implement the policies of the Chinese Communist Party (CCP).

[10] China Banking Regulatory Commission (CBRC) was officially launched on April 28, 2003, to take over the supervisory role of the PBOC.

The goal of the landmark reform is to improve the efficiency of bank supervision and to help the PBOC to further focus on the macroeconomy and monetary policy.

This type of financial institution is formed when a bank from a different country is allowed to set up retail commercial operations in a joint venture with the PBC.

Since 2005 some city commercial banks diversify their shareholders, inviting Chinese and international private companies to take minority shares, merging and cross-shareholding.

While the market for city commercial banks is oriented towards supporting the regional economy, it also finances local infrastructure and other government projects.

The central bank would continue to adjust and guide the interest rate development, which allows the market mechanism to play a dominant role in financial resource allocation.

As a first step, the PBOC liberalized the interest rates for foreign currency loans and large deposits (US$3 million and over) in September 2000.

At present, large cities, such as Beijing, Guangzhou, Shenzhen, Chongqing, and Chengdu, are calling for a reliable credit data system.

The rules provide detailed regulations for implementing the administration of the establishment, registration, scope of business, qualification, supervision, dissolution and liquidation of foreign financial institutions.

Furthermore, when China entered the WTO, geographic restrictions placed on RMB-denominated business was phased out in four major cities—Shanghai, Shenzhen, Tianjin and Dalian.

Then, on December 1, 2002, foreign-funded banks were allowed to commence RMB-denominated business in Guangzhou, Zhuhai, Qingdao, Nanjing and Wuhan.