Governance, Risk, and Compliance Handbook: Technology, Finance, Environmental, and International Guidance and Best Practices

CHAPTER 70

INTRODUCTION TO CHINA'S BANKING SECTOR

Anthony Tarantino, PhD

70.1 INTRODUCTION

70.2 CHINA'S BANKING REGULATORY ENVIRONMENT

70.3 FITCH'S EVALUATION OF CHINESE BANKS

70.4 CHINA'S BANKING REGULATORY AGENCIES

70.5 THE PEOPLE'S BANK OF CHINA (PBC)

70.6 CHINA BANKING REGULATORY COMMISSION (CBRC)

70.7 CHINA SECURITIES REGULATORY COMMISSION (CSRC)

70.8 CHINA'S ADOPTION OF BASEL II

NOTES

70.1 Introduction

Comprehending China's banking sector is essential in understanding its corporate governance and economic future. The banking sector dominates China's financial system, is very important to its overall economy, and will be a role model for other Chinese industries to follow in improving corporate governance. China's bank deposits are massive at $3.5 trillion and represent 160 percent of gross domestic product (GDP)—the highest in the world. As a comparison, Japan stands at 145 percent, the United Kingdom at 107 percent, the United States at 77 percent, and India at 68 percent.1

China's banking system is growing and improving at an impressive rate, but has a way to go to address institutional, organizational, and political problems in order to achieve parity with international financial institutions. A key problem is the inability of many banks to reduce the large numbers of nonperforming loans (NPLs). China's banks offer loans at unrealistically low rates, which has encouraged overinvestments in many sectors of the economy. These inefficiencies have been estimated to cost the ...