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China’s Banking System: Issues for Congress

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China’s Banking System: Issues for Congress, Michael F. Martin, Specialist in Asian Affairs, February 20, 2012

  • “China’s banking system has been gradually transformed from a centralized, government-owned and government-controlled provider of loans into an increasingly competitive market in which different types of banks, including several U.S. banks, strive to provide a variety of financial services. Only three banks in China remain fully government-owned; most banks have been transformed into mixed ownership entities in which the central or local government may or may not be a major equity holder in the bank.
    The main goal of China’s financial reforms has been to make its banks more commercially driven in their operations. However, China’s central government continues to wield significant influence
    over the operations of many Chinese banks, primarily through the activities of the People’s Bank of China (PBOC), the China Banking Regulatory Commission (CBRC), and the Ministry of Finance (MOF). In addition, local government officials often attempt to influence the operations of Chinese banks. Despite the financial reforms, allegations of various forms of unfair or inappropriate competition
    have been leveled against China’s current banking system. Some observers maintain that China’s banks remain under government-control, and that the government is using the banks to provide inappropriate subsidies and assistance to selected Chinese companies. Others claim that Chinese banks are being afforded preferential treatment by the Chinese government, given them an unfair competitive advantage over foreign banks trying to enter China’s financial markets.”

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