China has been building communism with elements of capitalism since the middle of the previous century. The banking system in the country has to maneuver between the laws of the market and the state control.
How does commercial banking work in a planned economy? Certain features of the Chinese banking system make it quite different from the banking systems in other countries.
Bits of history
The People’s Bank of China (PBC) was established in 1949 after the Revolution. By the middle of the 1950s, it took over all commercial banks or forced them out of the country. Until the end of the 1970s, the PBC had a monopoly in banking while combining the functions of a commercial and a central bank.
When Paul Walker started to increase the interest rates in 1979 to beat inflation in the U.S.A., China launched a different experiment. Namely, the country started building a system of commercial banks in a planned economy.
By 1984, the functions of PBC were distributed between 5 banks controlled by the state: Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC), Bank of Communications (BoCom), and Bank of China (BoC). The People’s Bank of China has been acting as the Central Bank since that time.
Later, the Government of China allowed the establishment of commercial banks in the country. Besides, foreign banks were permitted to open their branches in China. The total capitalization of Chinese banks is close to 50 trillion dollars. Four Chinese banks occupy the first four lines in the list of largest banks that work in China:
| Bank | Country |
| Industrial and Commercial Bank of China | China |
| China Construction Bank | China |
| Agricultural Bank of China | China |
| Bank of China | China |
| JPMorgan Chase | U.S.A. |
| Mitsubishi UFJ Financial Group | Japan |
| HSBC | Great Britain |
| Bank of America | U.S.A. |
| BNP Paribas | France |
| China Development Bank | China |
We would like to note at this point that not all Chinese banks would take foreign clients onboard. Some of them would, however, and you can learn about the details of one such bank if you follow the link.
Largest banks in China
Industrial and Commercial Bank of China (ICBC). The largest bank in China and in the world. Its assets exceed 5 trillion dollars. The bank was founded in 1984 and it specializes in providing financial services to industrial and energy generation companies. Besides, it is a large retail lender.
The bank services 8.6 million corporate clients and over 680 million individual clients. It earns 90% of its profits in China.
In 2006, ICBC launched the largest IPO in China at that time valued at 21 billion dollars. This was the first IPO in China with a double listing: the bank’s shares became available at both Shanghai and Hong Kong stock exchanges.
More than 400,000 people work in the bank. It has nearly 500 foreign branches and subsidiaries in 50 countries. In 2008, the bank opened a branch in New York. In 2014, ICBC opened a branch in Kuwait and it was the first Chinese bank to come to the country. It has 5 branches in the Middle East in total: in Abu Dhabi, Doha, Dubai, Riyadh, and Kuwait.
China Construction Bank (CCB). It is the second largest Chinese bank with assets valued at more than 4 trillion dollars. The bank was founded in 1954 under the name of ‘People’s Construction Bank of China’. It specializes in financing the construction industry and giving out mortgages. The bank also provides capital management services.
CCB has 15 thousand offices in China and it has foreign branches in Singapore, Germany, Luxembourg, Japan, South Korea, Australia, and the U.S.A. It also has subsidiary banks that provide services in the UK, UAE, New Zealand, Brazil, and Russia.
In 2005, the bank launched an IPO on the Hong Kong stock exchange and raised 9 billion dollars. In 2007, the bank’s shares were listed on the Shanghai Stock Exchange. Bank of America bought 9% of the bank’s shares in 2005 but it withdrew from the investment in 2013.
Agricultural Bank of China (ABC). One of the oldest banks in China, founded by Mao Zedong in 1951. Its assets are valued at more than 4 trillion dollars. The bank works with agricultural companies and provides services to individual clients.
ABC has 23,000 offices in China and foreign branches in Singapore, USA, Japan, Germany, UK, and other countries. The bank has 6 subsidiary banks.
In 2010, ABC launched an IPO on the Hong Kong and Shanghai stock exchanges and raised 19 billion dollars. Investment funds from Kuwait and Qatar as well as the British Standard Chartered bank became shareholders of ABC.
Bank of China (BoC). The oldest bank of those functioning in the country today: it was founded in 1912. Its assets are only a bit short of 4 trillion dollars. After the Revolution, the bank focused on foreign trade and it still preserves the focus. It provides financial services to individual and corporate customers and specializes in investment banking and insurance. BoC is licensed to issue Hong Kong dollars.
The bank has branches in more than 60 foreign countries, which makes it the most ‘internationalized’ Chinese bank. In 2010, a branch was opened in the U.S.A. and BoC became the first bank to offer investment and banking products in the yuan to Americans.
In 2006, the bank launched an IPO on the Hong Kong and Shanghai stock exchanges and raised 13.7 billion dollars. Its shareholders now include the Swiss UBS and the British Royal Bank of Scotland.
Regulation of the banking sector in China
The China Banking Insurance Regulatory Commission (CBIRC) monitors the activities of the banks in the country. The Commission oversees and inspects Chinese banks and insurance companies. Besides, it collects the data and publishes the statistics related to the performance of the banks. Finally, the Commission is authorized to approve mergers between banks and establishment of new banking institutions.
The People’s Bank of China is responsible for monetary policies and currency circulation in the country. It also regulates crediting commercial banks. The PBC also monitors the yuan exchange rates. Export prevails over import in China. For this reason, the PBC tries to keep the yuan exchange rates predictable. For example, the US dollar exchange rate fluctuated between 6.1 and 7.1 yuan for a dollar in the period from 2008 until now.
Since 2015, bank deposits have been insured in China for up to 500,000 yuan (around 70,000 US dollars). Overall, the Chinese banking system is reliable.