History of 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.
A major difference between the piaohao and the qianzhuang was the fact that the qianzhuang banking companies grew out of the money-changing businesses known as the qianpu and would engage in business typical of banks such as providing loans, savings accounts with interest, and so forth, while the piaohao would primarily facilitate the sending of remittances, that is, the sending of money, across the Chinese realm.
[7] Furthermore qianzhuang tended to be very locally run operations and were typically run only by a single family, or a close set of associates,[7] in contrast the piaohao maintained branch offices across China, this allowed money to be paid into one branch office and withdrawn from another branch office - essentially "sent" - without there to be any actual physical silver sycees or strings of copper-alloy cash coins having to be arduously transported, under heavy guard, across great distances bringing many risks with them.
From the time of the Taiping Rebellion, when transportation routes between the capital and the provinces were cut off, piaohao began involvement 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.
[9] Independent of the nationwide network of piaohao there were a large number of small native banks, generally called qianzhuang.
[11][12] Qianzhuang maintained close relationships with Chinese merchants, and grew with the expansion of China's foreign trade.
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.
[12] British and other European banks entered China around the middle of the nineteenth century to service the growing number of Western trade firms.
[15] The Chinese coined the term yinhang (銀行), meaning "silver institution", for the English word "bank".
Li Hongzhang, one of the leaders of the self-strengthening movement, made serious efforts to create a foreign-Chinese joint bank in 1885 and again in 1887.
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.
[citation needed] A lion's share of the profitable official remittance business was taken by the Daqing Bank from the piaohao.
[citation needed] In 1916 the Republican government in Beijing ordered the suspension of paper note conversion to silver.
With the backing of the Mixed Court, the Shanghai Branch of the Bank of China successfully resisted the order.
[25]: 27–28 Following the 1935 currency reform, the government of the Republic of China introduced the fabi (法幣, "legal tender"), from November of the year 1935 to December 1936, the three officially sanctioned note-issuing banks issued the new paper currency, the fabi was completely detached from the silver standard.
[26][27] Following the Chinese civil war between the Kuomintang and the Communist Party, the General Management Office and the Bank of Communications accompanied the government of the Republic of China during their move to Taiwan.
These branches would also accept remittances and assisted the government of the Republic of China in handling foreign procurement matters.
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.
[30]: 37 Pursuant to the 1953 "Regulations on Bank of China," it was made the only institution authorized to handle foreign currency and international payments.
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.
[30]: 38 In 1969, the State Council approved the consolidation of People's Bank of China's headquarters as a bureau within the Ministry of Finance.
[30]: 152 SCAFE became a subsidiary of the People's Bank of China in 1983 and became known by its current name, the State Administration of Foreign Exchange (SAFE).
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.
They were also instructed to keep on hand only enough cash to meet daily expenses; all major financial transactions were to be conducted through banks.
[30]: 47 As researcher Zongyuan Zoe Liu writes, "The Party's contemporary economic power and financial influence are based substantially upon the institutions that Zhu envisioned in 1993, Fifteen years later, in 2008, China's policy banks and sovereign funds emerged on the global financial scene as some of the world's largest institutional investors, wielding significant influence over financial markets and projecting the Party's power abroad.
[30]: 13 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.
