Social Economic Development

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Social Economic Development
Financial System in China
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• QUESTION
• Whats finance?

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CONTENTS
CONTENTS

• History of money in China
• Banking industry in China
• Financial Reform in China

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• Do you know money material in history ?
• Do you know money material in Chinese history?

HISTORY OF MONEY IN CHINA
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First Metal Money ---tools made of metal
Cowry shells
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Ban Liang Coin ( Half Liang ) --- Qin
Dynasty ---1 kilogram 20 Liang
Wu Zhu Coin (Five Zhu) --- Han Dynasty ---1
kilogram 480 Zhu
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Tongbao Coin or Yuanbao Coin --- Tang Dynasty
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Bronze Coin Silver Coin --- Qing Dynasty
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Jiao Zi (Paper Currency) ---Song
Dynasty ----Chengdu, Sichuan Province
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RMB (Fiat Money)
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BANKING INDUSTRY IN CHINA

• Historical development of Chinese banking system
• Structure of the banking industry in China

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1. Historical development of Chinese banking
system
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2. Structure of the banking industry in China
PBC
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• Peoples Bank of China
• Central bank
• State policy banks
• 1. National Development Bank
• Provide long-term financing support for key
  projects promoted by government economic plan
• 2. China Import Export Bank
• Provide export credit
• 3. Agricultural Development Bank
• Mainly to provide current fund for
  procurement of grain, cotton, oil, etc

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• Commercial banks
• (1)State owned commercial banks
• Bank of China
• China Industrial and Commercial Bank
• China Agriculture Bank
• China Construction Bank
• Bank of Communications
• (2)Other commercial banks (3)Foreign banks
• China Merchants Bank
  Branches
• China Everbright Bank
  JV banks
• (4)City cooperative banks
• Bank of Shanghai
• Beijing City Commercial Bank

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Money, Banking and Financial Markets in China
FINANCIAL REFORM IN CHINA

• Background
• China is both a developing economy and a
  transitional market economy.
• Chinas entry into the WTO

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Money, Banking and Financial Markets in China

• 1. THE IMPACT OF WTO ENTRY TO CHINAS FINANCIAL
  BUSINESS
• 1.1 Reform before Chinas entry into WTO
• Before 1978, the Peoples Bank of China
  controlled all financial resources.
• Chinas SCB (State Owned Commercial Banks) were
  created during the first wave of market reform
  in 1980s.

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Money, Banking and Financial Markets in China

• The Law of the People's Republic of China on the
  People's Bank of China passed by the Third Plenum
  of the Eighth National People's Congress on March
  18, 1995 legally confirmed the PBC's central bank
  status, which aims to prevent banks from
  providing direct subsidies to the state or making
  loans to government that did not meet commercial
  standards.
• Institutions of the PBC
• Shanghai Headquarter
• 2 business management department Beijing and
  Chongqing
• 9 branches

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Money, Banking and Financial Markets in China

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Money, Banking and Financial Markets in China

• Four asset management companies (AMCs) were
  established to liquidate tens of billions of yuan
  in bad debts owed by state-owned enterprises.

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Money, Banking and Financial Markets in China

• 1.2 The impact of WTO entry to Chinas financial
  business

• Positive Aspects
• improve the quality and availability of
  financial services in the domestic financial
  market
• serve to stimulate the development of the
  underlying banking supervisory and legal
  framework
• enhance a country's access to international
  capital

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• 1.3 FOREIGN INVESTMENT IN CHINESE BANKS

• Representative office
• Branch
• Wholly foreign-funded bank or Chinese-foreign
  joint venture bank
• Strategic Investor in domestic banks

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• The main changes in the new Foreign-invested Bank
  Administrative Rules
• Locally incorporated foreign-invested banks are
  entitled to engaged in all the RMB banking
  services local banks are allowed to do
• Branches of foreign banks that are not
  incorporated locally are only allowed to take
  local customers with a minimum deposit of RMB 1
  million
• The customer and geographic restrictions on
  foreign banks doing RMB business are removed.
  Foreign banks are now allowed to offer RMB
  services and bank card services to Chinese
  individuals throughout the country without having
  to obtain the approval of the regulatory
  authority

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• Remaining obstacles for foreign-invested banks
• Scarcity of outlets surely limits their access
  to vast customers. Furthermore, foreign banks
  will not be able to open more than one branch per
  year, which means they will not be able to
  achieve successful expansion in short period of
  time
• Excessive capital requirements (RMB 400 million
  equiv. EUR 39.6 million, compared with EUR 5
  million registered capital a Chinese bank must
  prove to open a branch in the EU)
• Lending limits Overall lending is not
  permitted to exceed 75 of deposits
• Administrative regulations and long waiting
  period for licence

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Foreign Banks in China
May 2010 Pricewaterhouse Coopers

• Commitment to China
• The foreign banks commitment to China remains
  exceptionally strong. As a group they averaged a
  score of 8.3 out of 10. the US banks recorded the
  highest score with 9.2 while the European and
  Asian banks displayed a very marginal decline.
  Looking forward to 2010, the number of banks
  assigning the maximum score of 10 out of 10.
• It is very evident form these scores that China
  remains at the forefront of the foreign banks
  future growth strategies.
• Another examples of this commitment is the
  growing interest in foreign bank listing. HSBC,
  Standard Chartered Bank and Bank of East Asia are
  seeking mainland listings.

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• Q How would you characterise the commitment of
  your parent bank to the Chinese market in
  comparison to other markets around the world on a
  scale of 1 to 10 ( where 1 represents no
  commitment and 10 is extremely aggressive)

Commitment of parent 2010 2009 2008
Locally incorporated(20) 9.05 8.7 9.47
European banks(21) 7.7 7.8 8.3
North American banks(8) 9.0 8.6 8.6
US banks(5) 9.2 9.0 n/a
Asian banks(12) 8.2 9.0 9.23
Average(41) 8.3 8.4 8.64
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• Q From the perspective of your head office, has
  the agenda for your banks operation in China
  changed positively/ negatively/or neutral?
• Base on the responses from 40 banks in 2010

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• Local incorporation
• Foreign banks continue to select the option
  to transition from branch status to local
  incorporation. Over 30 foreign banks are now
  locally incorported and predictions in 2010
  regarding this option are more optimistic than
  those recorded in 2009.
• three quarters of the respondents anticipate
  more than 40 locally incorported banks and about
  a third believe the number could rise above 50 by
  2011.

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• Q How many foreign banks will have incorporated
  by 2013?
• Base on the responses from 40 banks in 2010

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• Competition from domestic banks
• The rise of competition from domestic bank
  has been strongly influenced by the 2009 stimulus
  plan and 33 surge in bank lending.For exapmle,
  ICBC,China's largest bank by assets, reported in
  March,2010 that loans grew by 2427 in 2009.
• Domestic banks are now considered to be
  formidable competitors. With their extensive
  branch nerworks and rising service expertise they
  are much better placed to fend off competition
  from foreign banks in target markets.
• In areas such as wealth management, cards
  and internet banking, domestic banks are all
  continually lifting their game. The domestic
  banks are expanding their branch networks
  overseas. As a result, they are continuing to
  broaden their global servicing capablity.

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• Q What does your bank find the most/least
  difficult aspects of the Chinese banking
  industry?
• 1. Competition from domestic banks
• 2. Regulatory environment
• 3. Accounting and tax framework
• 4. Product/ revenue diversification
• 5. Finding and retaining good personnel
• 6. Innovative product/ service offerings
• 7. Economy and market volatility
• 8. Building a customer base
• 9. Brand name recognition
• 10. Competition from foreign banks
• 11. Risk management

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• Wolf coming or not?
• Case 1 Ericsson Incident
• Nanjing Ericsson Communication Co., Ltd. has
  shifted most of its business involving 1.99
  billion yuan (US0.24 billion) of bank loans to
  Citibank Shanghai from Bank of Communications.
  This case has been dubbed as 'Ericsson Incident'
  by the Chinese media.
• The shift was largely due to the fact that
  Chinese banks haven't the service of account
  receivable transfer without recourse. According
  to Bank of Communications, Ericsson applied for
  the service to the bank, whereby the bank was
  expected to buy its account receivable and assume
  the risk of collectibility and absorb any credit
  loss.
• Case2 Foreign banks' asset share of China's
  banking total
• 2.16(2008)-----1.71(2009)

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• Growing concerns in HR
• In 2008, concerns about personnel shortage
  abated and staff turnover dropped dramatically.
  Many foreign bank employees seemed content to sit
  out the economic storm. In 2009, only four banks
  had turnover above 20 and 22 banks said it was
  below 5. in 2010, mobility is expected to rise.
  22 banks project between 10 an 20 staff
  turnover and five banks expect to exceed 20.
• Salaries which remained flat in 2009 are
  expected to spike upwards in 2010.
• Reflecting the nature of the foreign banks
  business and desire to grow, the most critical
  staff function remains relationship bankers on
  the corporate banking side. Risk management
  personnel moved up one position to second place
  while legal/ compliance was in third place.

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• Product opportunity
• Q which product areas do you see as becoming
  increasingly important in the Chinese retail
  banking industry in the next three years?
• the top three products on the retail side are
  predicted to be
• high net worth individuals/ private banking
• investment products
• mortgage
• China's continued economic growth has
  accelerated the number of high net worth and
  ultra high worth individuals.
• In the 2010, Forbes list of billionairs there
  were 97 new additions and 27 of these were from
  mainland China. China ranks sercond behind the US
  on the Forbes list.

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• Q which product areas do you see as becoming
  increasingly importand in the Chinese wholesale
  banking market in the next three years?
• debt capital markets
• structure products
• private equity
• interest rate swaps
• others

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• Q What are the top three drivers of success in
  private banking?
• Many foreign banks recognise that wealth
  management will be an important compoent in their
  future strategic development in China
• strong products
• Top quality people
• recognised brand
• Q How do you differentiate your services from
  domestic banks?
• service