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China The Banking System
The history of the Chinese banking system has been somewhat
checkered. Nationalization and consolidation of the country's banks
received the highest priority in the earliest years of the People's
Republic, and banking was the first sector to be completely
socialized. 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. Over the course of time, the banking organization was
modified repeatedly to suit changing conditions and new policies.
The banking system was centralized early on under the Ministry
of Finance, which exercised firm control over all financial
services, credit, and the money supply. During the 1980s the
banking system was expanded and diversified to meet the needs of
the reform program, and the scale of banking activity rose sharply.
New budgetary procedures required state enterprises to remit to the
state only a tax on income and to seek investment funds in the form
of bank loans. Between 1979 and 1985, the volume of 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
matters), 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 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 the Cultural Revolution, in the 1970s it
was restored to its leading position. As the central bank, the
People's Bank of China had sole responsibility for issuing currency
and controlling the money supply. It also served as the government
treasury, the main source of credit for economic units, the
clearing center for financial transactions, the holder of
enterprise deposits, the national savings bank, and a ubiquitous
monitor of economic activities.
Another financial institution, the Bank of China, handled 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, issuing 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 engaged in foreign trade and maintained
overseas offices in major international financial centers,
including Hong Kong, London, New York, Singapore, and Luxembourg.
The Agricultural Bank was created in the 1950s to facilitate
financial operations in the rural areas. The Agricultural Bank
provided financial support to agricultural units. It issued loans,
handled state appropriations for agriculture, directed the
operations of 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 flourished in the late 1950s and
mid-1960s but languished thereafter until the late 1970s, when the
functions and autonomy of the Agricultural Bank were increased
substantially to help promote higher agricultural production. In
the 1980s it was restructured again and given greater authority in
order to support the growth and diversification of agriculture
under the responsibility system.
The People's Construction Bank managed state appropriations and
loans for capital construction. It checked the activities of loan
recipients to ensure that the funds were used for their designated
construction purpose. Money was disbursed 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 activities of the People's Construction Bank.
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. They handled deposits and short-term loans for
individual farm families, villages, and cooperative organizations.
Subject to the direction of the Agricultural Bank, they followed
uniform state banking policies but acted as independent units for
accounting purposes. In 1985 rural credit cooperatives held total
deposits of -Y72.5 billion.
Urban credit cooperatives were a relatively new addition to the
banking system in the mid-1980s, when they first began widespread
operations. As commercial opportunities grew in the reform period,
the thousands of individual and collective enterprises that sprang
up in urban areas created a need for small-scale financial services
that the formal banks were not prepared to meet. Bank officials
therefore encouraged the expansion of urban credit cooperatives as
a valuable addition to the banking system. In 1986 there were more
than 1,100 urban credit cooperatives, which held a total of -Y3.7
billion in deposits and made loans worth -Y1.9 billion.
In the mid-1980s the banking system still lacked some of the
services and characteristics that were considered basic in most
countries. Interbank relations were very limited, and interbank
borrowing and lending was virtually unknown. Checking accounts were
used by very few individuals, and bank credit cards did not exist.
In 1986 initial steps were taken in some of these areas. Interbank
borrowing and lending networks were created among twenty-seven
cities along the Chang Jiang and among fourteen cities in north
China. Interregional financial networks were created to link banks
in eleven leading cities all over China, including Shenyang,
Guangzhou, Wuhan, Chongqing, and Xi'an and also to link the
branches of the Agricultural Bank. The first Chinese credit card,
the Great Wall Card, was introduced in June 1986 to be used for
foreign exchange transactions. Another financial innovation in 1986
was the opening of China's first stock exchanges since 1949. 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. Payment for goods
and services exchanged by economic units was accomplished by
debiting the account of the purchasing unit and crediting that of
the selling unit by the appropriate amount. This practice
effectively helped to minimize the need for currency.
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. Small branch offices of savings banks were conveniently
located throughout the urban areas. In the countryside savings were
deposited with the rural credit cooperatives, which could be found
in most towns and villages. In 1986 savings deposits for the entire
country totaled over -Y223.7 billion.
Data as of July 1987
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