The fourth generation leaders of China to whom political power has been transferred during October 2002 have endorsed the socialist market economy model, paving the way for private enterprises to co-exist with public sector companies. They have realized that China, a nation of over 1.3 billion people, has strong economic fundamentals in the form of fast GDP growth, substantial foreign direct investment, cheap labor, a stable and strong domestic currency and low government debt. However, the banking system suffers from many infirmities, like mounting NPAs, behest lending, unsophisticated procedures, lack of competition, protected environment, primitive stage of computerization and absence of sound risk management, corporate governance, transparency, and accounting standards. While banking reforms have been initiated back in 1978, the progress so far has been very slow. With China's entry into the WTO fold, Chinese banks have to gear up to face competition from foreign banks, who will be entering China shortly.
China is a very fast growing major economy in the world, with a strong domestic demand and substantial foreign direct investment. It has joined WTO during December 2001. But its banking system is in a crisis with a very high level of non-performing assets and behest lending to state managed enterprises, which have been faring very poorly. With the entry into WTO fold, foreign banks will get the green signal to carry out business in foreign currency with their international clients and one year later, with their domestic clients. Within two years, they will also be allowed to conduct wholesale banking business in local currency and within five years, they will be permitted to do retail business with the Chinese population. So, obviously there is an urgent need for the unsophisticated and ailing Chinese banks to perform better and be in competition with the foreign banks.
Chinese banking reforms were initiated during 1978, a clear 14 years ahead of Indian economic reforms of 1992. The People's Bank of China (PBOC) which functioned both as a central bank and the only commercial bank has been split to form four specialized banks and one central bank, which retained the name of PBOC. The four specialized banks are the Agricultural Bank of China (ABC), the China Construction Bank (CCB), The Bank of China (BOC) and The Industrial and Commercial Bank of China (ICBC). |
