The People's Bank of China is the central bank of People's Republic of China with the power to control monetary policy and regulate the financial institutions in mainland China. The People's Bank of China has more financial assets than any other single public finance institution in world history.
Currency:
The Renminbi (RMB) (sign: ¥; code: CNY) is the official currency of the People's Republic of China (PRC), whose principal unit is the Yuan. The currency is legal tender in mainland China, but not in Hong Kong and Macau.
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History:
The bank was established on December 1, 1948 based on consolidation of Huabei Bank, the Beihai Bank and the Xibei Farmer Bank. The headquarter was first located in Shijiazhuang, Hebei and then moved to Beijing in 1949. Between 1949 and 1978 the PBC was the only bank in People's Republic of China and was responsible for both central banking and commercial banking operations.
In the 1980, as part of economic reform, the commercial banking functions of the PBC were split off into four independent but state owned banks and in 1983, the State Council promulgated that the PBC would function as the central bank of China. Its central bank status was legally confirmed on March 18, 1995 by the 3rd Plenum of the 8th National People's Congress. In 1998, the PBC underwent a major restructuring. All provincial and local branches were abolished, and the PBC opened nine regional branches, whose boundaries did not correspond to local administrative boundaries. In 2003, the standing committee of the 10th National People's Congress approved an amendment law for strengthening the role of PBC in the making and implementation of monetary policy for safeguarding the overall financial stability and provision of financial services.
Management:
The top management of PBC is composed of the governor and a certain number of deputy governors. The governor of the PBC is appointed into or removed from office of the President of People's Republic of China. The candidate for the governor of PBC is nominated by the Premier of the State Council and approved by the People's National Congress. The deputy governors of the PBC are appointed into or removed from office by the Premier of the State Council.
The PBC adopts a governor responsibility system under which the governor supervises the overall work of the PBC while the deputy governors provide assistance to the governor to fulfill his or her responsibility.
The Governor at this time is Zhou Xiaochuan. Other high ranking deputies include Wang Hongzhang, Hu Xiaolian, Liu Shiyu, Ma Delun, Yi Gang, Du Jinfu, Li Dongrong, Guo Qingping.
Structure:
The PBC has established 9 regional branches respectively in Tianjin, Shenyang, Shanghai, Nanjing, Jinan, Wuhan, Guangzhou, Chengdu and Xi'an, 2 operations offices in Beijing and Chongqing, 303 municipal sub branches and 1809 county level sub branches.
It has 6 overseas representative offices PBC Representative Office for America, PBC Representative Office (London) for Europe, PBC Tokyo Representative Office, PBC Frankfurt Representative Office, PBC Representative Office for Africa, Liaison Office of the PBC in the Caribbean Development Bank.
The PBC consists of 18 functional departments (bureaus),
• General Administration Department
• Legal Affairs Department
• Monetary Policy Department
• Financial Market Department
• Financial Stability Bureau
• Financial Survey and Statistics Department
• Accounting and Treasury Department
• Payment System Department
• Technology Department
• Currency, Gold and Silver Bureau
• State Treasury Bureau
• International Department
• Internal Auditing Department
• Personnel Department
• Research Bureau
• Credit Information System Bureau
• Anti-Money Laundering Bureau (Security Bureau)
• Education Department of the COC PBC Committee
The following enterprises and institutions are directly under the PBC;
• China Anti-money Laundering Monitoring and Analysis Center
• PBC Graduate School
• China Financial Publishing House
• Financial News
• China National Clearing Center
• China Banknote Printing and Minting Corporation
• China Gold Coin Incorporation
• China Financial Computerization Corporation
• China Foreign Exchange Trade System
Microfinance:
• Rural Credit Cooperatives
List of Governors:
• Nan Hanchen: October 1949-October 1954
• Cao Juru: Oct. 1978-April 1982
• Lu Peijian: April 1982-March 1985
• Chen Muhua: March 1985-April 1988
• Li Guixian: April 1988-July 1993
• Zhu Rongji: July 1993-June 1995
• Dai Xianglong: June 1995-Dec.
Interest Rates:
Interest rates set by the bank are always divisible by nine, instead of by 25 as in the rest of the world.
Evolution of Banks in China
The history of Chinese banking system has been somewhat checkered. Nationalization of the country's banks got the highest priority in the earliest year of People's Republic of China, and the banking was the first sector to be completely socialized. In the period of Chinese war (1949-52), the People's Bank of China moved very effectively to raging inflation and brings the nation's finances under central control. Over the course of time, the banking organization was modified repeatedly to suit changing conditions and new policies.
The people's Bank of China was the central bank and the foundation of the banking system. Although the bank overlapped in function with the Ministry of Finance and lost many of its responsibilities during Cultural Revolution, in the 1970 it was restored to its leading position. As the central bank the People's Bank of China had sole responsibility for issuing and controlling the money supply. It also served as the government treasury, the main source of credit economic units, the clearing center of financial transactions, the holder of enterprise deposits, the national saving banks, and a ubiquitous monitor of economic activities.
The People's Construction Bank managed by state and provides loans for capital construction. It checked the activities of loans receipts to insure that the funds were used for their designated construction purpose. Money was spending in stages as a project progressed. The reform policy shifted the main source of investment funding from the government budget to bank loans and increased the responsibility and increased the responsibility and activities of the People's Construction Bank.
Another financial institution, the Bank of China, handle all dealings in foreign exchange. It was responsible for allocating the country's foreign exchange reserves, arranging foreign loans, setting exchange rates for China's currency, issuance of letters of credit, and generally carrying out all financial transactions with foreign firms and individuals. The Bank of China had offices in Beijing and other cities and maintained overseas offices in major international financial centers, including Hong Kong, London, New York, Singapore and Luxembourg.
Banking system was centralized early or under the Ministry of Finance, which exercised firm control over all financial services, credit, and the money supply. During 1980 the banking system was expended to meet the needs of the program, and the scale of banking activity rose sharply. New budgetary producers required state enterprises to resubmit to the state only a tax on income and to seek investment funds in the form of bank loans. Between 1979 and 1985, the deposits nearly tripled and the value of bank loans rose by 260 percent. By 1987 the banking system included the People's Bank of China, Agricultural Bank, Bank of China (which handled foreign exchange things), China Investment Bank, China Industrial and Commercial Bank, People's Construction Bank, Communications Bank, People's Insurance Company of China, Rural Credit Cooperatives and Urban Credit Cooperatives.
The Agricultural Bank was created in the 1950 to facilitate financial operations in the rural areas. The Agricultural Bank provide financial support to the agricultural units. It issued loans, directed the operations in the rural credit cooperatives, and carried out overall supervision of rural financial affairs. The Agricultural Bank was headquartered in Beijing and had a network of branches throughout the country. It starts increasing in the late 1950 and mid 1960 but ended in the late 1970. When the functions of the Agricultural Bank were increased it helps promote higher agricultural production. In the 1980 it was restructured again and given greater authority in order to support the growth of agriculture under the responsible system.
Rural Credit Cooperatives were small, but collectively owned savings and lending organizations that were the main source of small scale financial services at the local level in the countryside. They handled deposits and short terms loans for individual farm families, villages and cooperative organizations. Subject to the direction of the Agricultural Bank, they followed uniform state banking policies and acted as independent units for accounting purposes. In 1985 rural credit cooperatives held total deposit ¥72. 3).
Different Categories of Banks
Bank of China
Agricultural Bank of China (one of the main banks in mainland China)
CITIC Industrial Bank (China International Trust and Investment Bank)
China Construction Bank (one of the main banks in mainland China)
China Merchants Bank (one of the main banks in mainland China)
Industrial and Commercial Banks in China (one of the largest state owned in China)
Kincheng Banking Corporation (keep progress with time, expended and grown to become one of the top 500 banks in the world.)
Banks Owned by the Central Government
Name Headquarter
Agricultural Bank of China Beijing
Bank of China Beijing
Bank of Communications Shanghai
Industrial and Commercial Bank of China Beijing
People's Bank of China Beijing
Xiamen International Bank Xiamen
Postal Saving Bank of China Beijing
China CITIC Bank Beijing
China Construction Bank Beijing
China Development Bank Beijing
Exim Bank of China Beijing
Hua Xia Bank Beijing
Banks Owned By Local Governments
Bank of Jinzhou Jinzhou
Bank of Jilin Changchun
Harbin Bank Harbin
Industrial Bank Fuzhou
Guangdong Development Bank Guangzhou
Bank of Ningbo Ningbo
Shenzhen City Commercial Bank Shenzhen
Shenzhen Development Bank Shenzhen
Zhejiang Tailon Commercial Bank Taizhou
Ping An Bank Shenzhen
Bank of Shanghai Shanghai
Bank of Beijing Beijing
Bohai Bank Tianjin
China Merchants Bank Shenzhen
Dalian Bank Dalian
Shengjing Bank Shenyang
Shanghai Pudong Development Bank Shanghai
Private Owned Banks
• China Minsheng Banking Corp.
• Taizhou City Bank.
Other Banks
• SiliBank
Bank Incorporated in the Special Administrative Regions
• Wing Hang Bank Limited. (Bunco Wang Hang)
Banks in Hong Kong
• City Bank Limited.
• Hong Kong and Shanghai Banking Corporation Limited.
• Bank of China (Hong Kong) Limited.
• Industrial and Commercial Bank of China Limited. Macau
• Banco Nacional Ultramarino
• China Construction Bank Corporation Limited
• Public Bank Limited.
• Shanghai Commercial Bank Limited.
• Standard Bank Asia Limited.
• Tai Sang Bank Limited.
• Tai Yau Bank Limited.
Macau
Banco Nacional Ultramarino
China Construction Bank Corporation Limited.
Banco Commercial de Macau.
Banco Esparto Santo Asia Limited.
The Macau Chinese Bank Limited.
Temple Zone Asian Bank Limited.
Luso International Banking Limited.
Seng Heng Bank Limited.
Tai Fung Bank Limited.
Local Corporation:
The China Banking Regulatory Commission (CBRC) announce on 24 December 2006 its approval for nine foreign funded Banks to start their preparatory work for setting up local corporation in China. Currently even more banks have been able to incorporate locally in china.
• Shin hen Bank (South Korea)
• Standard Chartered Bank (United Kingdom)
• Wing Hang Bank (Hong Kong)
• Dah Sing Bank (Hong Kong)
• DBS Bank (Singapore)
• Hang Seng Bank (Hong Kong)
• The Hong Kong and Shanghai Banking Corporation.
• The Hong Kong and Shanghai Banking Corporation.
• Overseas Chinese Banking Corporation (Singapore)
• The Bank of East Asia (Hong Kong)
• The Bank of Tokyo Mitsubishi UFJ (Japan)
• Citi Bank (United States)
Assets of the Largest Ten Banks In China
These are the top then banks operating in China has assets on the Dec. 31, 2008, they are listed below
Name of the Bank Total Assets (In Millions US$)
• Industrial and Commercial Bank of China. $1,427,610.00
• China Construction Bank Corporation. $1,105,471.00
• Agricultural Bank of China. $1,026,300.00
• Bank of China Limited. $1,017,130.00
• China Development Bank Corporation. $558,936.00
• Bank of Communication Corporation Limited. $392,554.00
• China Postal Saving Bank. $326,362.00
• China Merchants Bank Corporation Limited. $229,976.00
• Agricultural Development Bank of China. $198,205.00
• Shanghai Pudong Development Bank. $191,588.00s
Main Activities of the Bank
Store Money
ï‚· Storing money for customers is the most classic of banking activities. Traditional banks, credit unions and savings institutions offer this service. Customers use bank accounts, such as checking or regular savings accounts, because most provide safe locations to store deposited money that is FDIC-insured, or protected by the Federal Deposit Insurance Corporation. This means that consumers will not lose their regular savings money (up to $100,000) if their accredited bank or financial institution fails or goes bankrupt. Some savings accounts allow customers to accrue interest on their stored money. Each type of account is different, but many checking and savings accounts are set up to allow the customer to remove money as desired.
Facilitate Payments
ï‚· Banks and financial institutions enable their customers to pay others. Customers are given checks, both paper and electronic, and other payment tools, such as debit cards. A customer is able to write a check or make a payment to an outside vendor, such as a grocery store, Electricity Company or other outside individual, with one of their designated payment tools. The financial institution sends money from the customer's account to their designated payee.
The actions work in other ways as well. For example, a bank customer may receive a paycheck or direct deposit from his employer. He then deposits the check into his bank account to have access to all the funds.
Loan Money
ï‚· Lending money allows a bank or financial institution to earn money, according to the FDIC website. This for-profit service involves the bank lending a sum of money to a customer and then charging interest as the loaned amount is repaid back to the institution. Loans are used to purchase or lease automobiles, buy homes, refinance mortgages, perform home repairs and other expensive projects. Loans may be small or large amounts, depending on the customer's needs. Banks typically require the customer to put up collateral for the loan. Each loan interest rate varies on the type of loan, the time period of the loan and the customer's credit history. The bank uses other customers' money, including money from savings accounts, in order to loan money to its other customers.
Bank is a complex institution, involved not only in the intermediation of central bank reserves, but also acting as an umbrella organization for central banks and other financial authorities with a stake in the promotion of financial and monetary stability. Against this backdrop, the Bank's activities over the past financial year were again marked by their diversity. Before reviewing these many activities, I would like to take this opportunity to thank the staff of the BIS, who through commitment, flexibility and dedication to high-quality work have enabled the Bank to accomplish the important mission with which you have entrusted us. In particular, I should mention here those staff members who work in business areas which are not seen by our customers and therefore do not enjoy immediate recognition, but who contribute greatly to the success of our institution.
Banking operations
As an intermediator of central bank funds, the guiding principles of the Bank in serving its customers have always been liquidity, security, confidentiality and return. To achieve these goals, the Bank has applied a strategy of offering to central bank customers liquid instruments that provide a yield pickup over qualitatively comparable alternatives for central bank portfolio investments, and of rigorously monitoring and managing credit and market risk.
Within the framework of this strategy, the Bank witnessed an increase in its balance sheet over the past decade from just below USD 90 billion in the 1990/91 financial year to nearly USD 175 billion at the end of financial year 2001/02, with over USD 20 billion of this increase coming in the past year.
In terms of market share, the Bank intermediates about 6.5% of world international reserves, serving almost 120 central bank customers. The growth in Asian deposits has been especially buoyant. This region accounted for less than one quarter of total currency deposits at the end of 1998. Right now, the region claims a share of about 45%.
Medium-Term Instruments have been a major attraction for central bank funds in recent years. Created in late 1998 to accommodate customers' requests for longer-dated tradable instruments, purchases of MTIs grew to a record USD 48 billion at the end of 2001. However, expectations of rising interest rates in early 2002 led many central banks to shorten the duration of their portfolios, also at the BIS. As a result, the MTI book declined slightly.
Analytical and statistical contributions of the Bank
The second main area into which the Bank's energy and resources are channeled is the provision of analytical and statistical services. Two features of the Bank's activities in this domain deserve particular mention. The first one is the increasingly global character of participation in the meetings supported by the Bank. The other one, which I will comment on in a minute, is the thrust of the analysis done in support of international cooperation.
Whereas 15 years ago the meetings under the auspices of the BIS brought together the central banks of the most important industrial countries, today's meetings are almost uniformly marked by the geographical diversity of participants. In addition, the number of meetings taking place in all regions of the world has expanded greatly.
Everybody, I believe, will agree that availability of accurate and timely information plays a key role in the sound functioning of financial markets. The collection, compilation and dissemination of comprehensive financial and macroeconomic statistics have therefore remained a prime area of activity in the Monetary and Economic Department, often in active cooperation with central banks and other international institutions. Noteworthy developments over the reporting period have been the improvement of the measurement of commercial banks' consolidated country risk exposures (on a so-called ultimate risk basis), the coordination of another survey of foreign exchange and derivatives market activity and a broadening of the geographical and topical coverage of the BIS Data Bank.
Finally, an important and growing aspect of the Bank's activities in the analytical area has been the dissemination of the outcome of the Bank's cooperative efforts and research, and of the initiatives undertaken by the various committees hosted by the BIS.
Roles of the People's Bank of China
Drafting and enforcing relevant laws, rules and regulations that are related to fulfilling its functions
2. Formulating and implementing monetary policy in accordance with law
issuing the Renminbi and administering its circulation
3. Regulating financial markets, including the inter-bank lending market, the inter-bank bond market, foreign exchange market and gold market
4. Preventing and mitigating systemic financial risks to safeguard financial stability
5. Maintaining the Renminbi exchange rate at adaptive and equilibrium level
6. Holding and managing the state foreign exchange and gold reserves
7. Managing the State treasury as fiscal agent
8. Making payment and settlement rules in collaboration with relevant departments and ensuring normal operation of the payment and settlement systems
9. Providing guidance to anti-money laundering work in the financial sector and monitoring money-laundering related suspicious fund movement
10. Developing statistics system for the financial industry and responsible for the consolidation of financial statistics as well as the conduct of economic analysis and forecast
11. Administering credit reporting industry in China and promoting the building up of credit information system
12. Participating in international financial activities at the capacity of the central bank
13. Engaging in financial business operations in line with relevant rules
14. Performing other functions prescribed by the State Council.
China's Currency Manipulation.
After China allows the Yuan to float more freely, it has adopted a "managed float" policy. The Bank of China was able to manipulate its currency by buying dollars to keep the dollar price high. China has been interested in keeping the Yuan undervalued relative to the US Dollar, and the easiest way to keep the Dollar price high, and the Yuan low is to buy dollars from the open market. A country like China, which runs a huge Trade Surplus, can afford to buy dollars in the open.
Banking System Owned By
China's banking system has undergone significant changes in the last two decades: banks are now functioning more like banks than before. Nevertheless, China's banking industry has remained in the government's hands even though banks have gained more autonomy. China's accession to WTO will lead to a significant opening of this industry to foreign participation.
The central bank of the People's Republic of China is the People's Bank of China.
The "big four" state-owned commercial banks are the Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China.
There are many banks which are owned by governments, local government, committees as mentioned above in the categories of the banks.
There is increased evidence from official development institutions and private economists around the world documenting the linkage between more rapid-and stable-economic growth on the one hand, and sound financial systems on the other.
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Special Government Lending Institutions
Despite numerous privatizations over the past decade, publicly owned banks and other state-owned financial institutions still serve the majority of individuals in developing countries, according to presentations by James Hanson, George Clarke, and Robert Cull of the World Bank. State-owned financial enterprises are less prevalent in developed economies, with very few exceptions, such as Germany and, to a lesser extent, the United States, with its large government-sponsored entities supporting residential home ownership that have implicit government backing, according to David Marston of the International Monetary Fund. Public ownership of these financial institutions and others has been rationalized on several grounds:
To counter the power of strong private sector banks or to promote the development of home-grown banks in the early stages of an economy's history-the so-called infant industry rationale. Both arguments helped justify the formation of the First and Second National Banks of the United States in the early 1800s, for example.
To ensure that economic growth is consistent with national objectives. This is a clear rationale for socialist economies, but even in private economies there is a view that governments have better knowledge of socially beneficial investment opportunities than private banks.
To ensure that underserved groups or sectors, such as agriculture and small businesses, receive credit.
To respond to financial crises, which have hit developed and developing countries alike. In some of these cases, government ownership is temporary, but in some cases it lasts for significant periods.
Among government officials around the world there is support for some government ownership of financial institutions based on one or more of these rationales. Economists generally, however, are skeptical of all these rationales except for the last one.
Country Experiences with State-Owned Financial Institutions
China is perhaps the best-known example of a country with dominant public sector banking. Most of its banks are owned by the central, provincial, or local governments, and nonperforming loans to other state-owned enterprises loom large in its economy. The outlook for the Chinese banking sector is mixed, according to Nicholas Lardy. On the one hand, the official returns on assets of China's state banks dropped precipitously during the 1980s and 1990s, while nonperforming loans grew rapidly during the mid-1990s, reaching 25 percent of total bank loans by 1997. On the other hand, Chinese officials in recent years have recognized the importance of dealing with the banks' problems. They therefore have reduced the government's involvement in the banks' allocation of credit and have created four asset management companies to deal with the nonperforming loans. The results so far are impressive-nonperforming loans have declined significantly (largely because many were transferred to the asset management companies), while the banks appear to be more efficient. Yet the outlook remains guarded: lending by Chinese state-owned banks soared in 2003 and early 2004 and was initially resistant to attempts to check the expansion, which raises the risks of higher nonperforming loans in the future.
Ishrat Husain, governor of the State Bank of Pakistan, discussed Pakistan's government-owned banks, which have had the more common experience, particularly its agricultural development bank: high nonperforming loans, overstaffing and other inefficiencies, and poor customer service. Through much of the 1990s, however, Pakistan has been privatizing its banks while beefing up the prudential regulation of privately owned banks-so far, with good results.
Risk Face by the Banks In China
Chinese banks would see their systematic risk very bad. Bad loan ratios creep up in the next few years but it was unlikely that they would face a systemic crisis similar to that suffered by their Wall Street counterparts two years ago.
"Lending to the real estate sector and local government financing vehicles in 2009 are sources of future growth in non-performing loans," said Yvonne Zhang, China banking analyst of Moody's Investors Service.
Potential losses from the two sectors could hit Chinese bank profitability, but the likelihood of a downgrade on their financial ratings was slim, partly because of the country's robust economic growth, said Zhang, who covers a portfolio of Chinese banks including top lenders Industrial and Commercial Bank of China and China Construction Bank for Moody's from Beijing.
"As long as the Chinese economy maintains its fast growth, we think the performance of major Chinese banks will not be too bad," Zhang told clients at a briefing in China's financial hub on Tuesday. "One positive is the quick policy response from the government, which could help mitigate systemic risk."
The China Banking Regulatory Commission this month said "unwise lending" to local government investment units was among key risks faced by Chinese banks.
Chinese banks may have as much as 7 trillion Yuan ($1.03 trillion) in loans to local government financing vehicles on their books, latest official data showed.
A correction in China's property sector after the government introduced a range of policies to curb surging real estate prices could also hit banks in the next few years as heavily-leveraged home buyers may default on their loans.
All major Chinese banks have announced massive fundraising plans to replenish their capital bases after a lending spree last year to support the country's 4 trillion Yuan stimulus programed.
Risk Management Techniques
In a recent interview with a Gartner analyst, I learned that Chinese banks are now reinvesting in their back offices, by adopting better risk management practices, as well as dealing with compliance.
Christophe Uzureau, research director of the banking segment at Gartner, told me it's important to note the different levels of maturity of IT services across Asia, in terms of how banks use IT applications.
With the credit crunch and effects of the subprime crisis rippling across Asia, Uzureau said that banks in China were realizing the need to invest in risk management, and were dealing with compliance, based on better accounting systems, and preparing themselves for Basel II.
Uzureau had recently spent some time in Shanghai networking with bankers, and said he noticed that some banks in China are trying to reinvest in their back offices, and to improve the prosperity of some of the processes of their banking operations.
The bank regulators in China -- The People's Bank of China and the China Regulatory Banking Commission -- are "quite keen for banks to improve their compliance and risk management practices, "said Uzureau.
"In terms of IT investment, clearly, risk management is a priority in China for front clients because Chinese banks have to deal with the lack of credit information in the market."
Most Chinese banks do not yet have any central database, providing crucial information on the credit wealthiness of small-medium businesses, according to Uzureau. And this poses a difficulty, as The People's Bank of China works on credit recalls, from small-medium businesses and from consumers.
