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Prespective On Chinese Financial System and policy-reforms-
 

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    Prespective On Chinese Financial System and policy-reforms- Prespective On Chinese Financial System and policy-reforms- Presentation Transcript

    • Perspectives on China’s Financial System And Policy Reforms REGMI Milan 2014 regmimilan7@gmail.com
    • History- Chinese Financial System • It conducted all banking functions like accept deposit, loans, issue notes, money exchange and remittance by Song Dynasty (960-1279). • Due to the chronic structural weaknesses of traditional Chinese law, Chinese financial institutions focused primarily on commercial banking based on close familial and personal relationships, and their working capital was primarily based on the float from short-term money transfers rather than long- term demand deposits. • The modern concepts of consumer banking and fractional reserve banking never developed among traditional Chinese banks and were introduced to China by Western bankers in the 19th century. (C) REGMI_Milan 2014
    • Major Chinese financial system • Piaohao – An early Chinese banking institution was called the piaohao, also known as Shanxi banks – All piaohao were organised as single proprietaries or partnerships, where the owners carried unlimited liability. – To deal with the transfer of large amounts of cash from one branch to another, the company introduced drafts, cashable in the company's many branches around China. – By the end of the nineteenth century, thirty- two piaohao with 475 branches were in business covering most of China. (C) REGMI_Milan 2014
    • Contd… • Qianzhuang – Independent of the nationwide network of piaohao there were a large number of small native banks, generally called qianzhuang. – The first qianzhuang can be traced to at least the mid-eighteenth century. – This was local and functioned as commercial banks by conducting local money exchange, issuing cash notes, exchanging bills and notes, and discounting for the local business community. – It maintained close relationships with Chinese merchants, and grew with the expansion of China's foreign trade. – When Western banks first entered China, they issued "chop loans" (caipiao) to the qianzhuang, who would then lend this money to Chinese merchants who used it to purchase goods from foreign firms. It is estimated that there were around 10,000 qianzhuang in China in the early 1890s (C) REGMI_Milan 2014
    • Entry of foreign banks • British and other European banks entered China around the middle of the nineteenth century to service the growing number of Western trade firms. • The first foreign bank in China was the Bombay-based British Oriental Bank. • The British enjoyed a virtual monopoly on modern banking for forty years. • They also enjoyed complete control over China's international remittance and foreign trade financing. • They were not regulated by the Chinese government, they were free to issue banknotes for circulation, accept deposits from Chinese citizens, and make loans to the qianzhuang. (C) REGMI_Milan 2014
    • After 1949 • (1949-52)People's Bank of China moved very effectively to halt raging inflation and bring the nation's finances under central control. • 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. • 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 of China, 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. (C) REGMI_Milan 2014
    • Comparison between Islamic, Indian and Chinese Regional Financial System Islamic regional Finance • The Islamic financial system starts from 8th and 12th century. • The monetary economy of the period was based on widely circulated currency the gold dinar. • It is based on elimination of riba and ensure a profit sharing mechanism in the financial system. Indian Regional Finance • Indian system starts from starting of 1950’s. • Control of Money Lenders • No Laws / Total Private Sector • No Regulatory Bodies • Hardly any industrialization • Banks – Traditional lenders for Trade and that too short term Chinese Regional Finance • Chinese Financial System is highly regulated. • It has recently begun to expand rapidly as monetary policy becomes integral to its overall economic policy. • Banks are becoming more important to China's economy (C) REGMI_Milan 2014
    • • It promotes symmetry of risks and rewards. • It is based on equity. • It maintains the relation between investors to institutions. • Many capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards. • Main concentration on Traditional Agriculture . • Narrow industrial securities market (i.e. Gold/Bullion/Metal but largely linked to London Market. • Intermediately institutions was absence in long-term financing of industry • Export Driven economy • US$586 billion economy stimulus package • It has lower rate of custom duties and export drawback, and exercises import supervision. (C) REGMI_Milan 2014
    •  The financial organization of Islamic financial system are Savings Bank , Pilgrims saving corporation, Economic and community development, Insurance, Mutual Fund, Standard for accounting and auditing, Bond market, Investment fund. Reforms (ethical reforms)  Behavioral norms and moral foundations" derived from the Quran.  Prohibition of tax.  Zattax as the basis of Islamic fiscal policy  The financial system of Indian financial system are regulators, financial instruments(money mrkt and capital mrkt), financial intermediaries, financial market(capital, forex, money and credit market). Reforms (1960’s -1990’s)  Administered interest rates  Industrial licensing and controls  Dominant public sector  Limited competition  High capital-output ratio The financial organization of Chinese financial system are Agricultural Development Bank of China, the China Development Bank and the China Import, Export Bank and other Commercial Banks. Reforms (1978)  Steady development  China financial system is under the central bank, with its state banks as the mainstay.  People's Bank of China stopped handling credit and savings business  financial regulatory system has been formed. (C) REGMI_Milan 2014
    • Instrument of Chinese Financial System 1. Price-based Instruments: It consists of four categories: -Instrument with ratios(reserve requirement) -Instrument with interest rate(central bank lending rates) -Quantitative instrument(open market operations) -Other instruments(central bank bills) 2. Quantity based Instruments: Those instrument that are non market conform. i.e. instruments that change the amount of money in the financial system without taking into account the price of money. (C) REGMI_Milan 2014
    • Financial Regulators 1. China Banking Regulatory Commission (CBRC): - It is responsible for the supervision and regulation of banking sector of china’s financial services industry. 2. China Securities Regulatory Commission (CSRC): - It is responsible for the oversight and regulation of the securities and future segment of Chinese financial services industry. 3. China Insurance Regulatory Commission(CIRC): - It is an agency of china authorized by the state council to regulate the Chinese insurance product and services market and maintain legal and stable operations of insurance industry. (C) REGMI_Milan 2014
    • • The bank-centric model of Chinese Financial System was effective in mobilizing savings to satisfy investment needs during China’s earlier stages of development.. • Imbalance in China’s financial system started from the prominent role played by bank intermediation in growth, experiencing an increase in bank credit accounting for close to 80 to 90 percent of funds raised by the corporate sector. (C) REGMI_Milan 2014
    •  China’s equity and bond markets remain relatively small but have developed imbalances of their own.  Although the private sector now accounts for more than 60 % of GDP ,  state-owned enterprises have benefited disproportionately from initial public offering (IPO)  When comparing the depth of China’s financial system to those of more developed market economies, the most notable differences are the relatively small size of outstanding debt securities and a near-absence of securitized loans. (C) REGMI_Milan 2014
    •  One of the main aims of the current round of reforms is to increase the proportion of direct financing as a share of total social financing: a measure that includes items such as entrusted loans, trust loans, bankers acceptance bills, corporate bond financing and equity raising by non-financial enterprises, in addition to regular bank loans. According to data from the People’s Bank of China (PBOC), bond and equity fundraising (by non- financial companies) together accounted for only 16.1% of total social financing in 2012, although this represented an increase from 14.1 % in 2011. (C) REGMI_Milan 2014
    • Financial depth Comparison –year End 2010 (% of GDP) Comparison between Strong Economies (C) REGMI_Milan 2014
    • (C) REGMI_Milan 2014
    • The securities regulator’s reform agenda • In early 2012, the newly-appointed China Securities Regulatory Commission (CSRC) Chairman Guo Shuqing renewed the regulator’s commitment to market reforms and set out the following priorities: INCREASING THE ROLE OF DOMESTIC INSTITUTIONS—CSRC will encourage long-term institutional investors, including state and corporate pension funds, insurance companies, national endowment insurance fund, as well as housing funds to increase the proportion of capital markets investments in their portfolios. (C) REGMI_Milan 2014
    • • REFORM OF LISTING/DELISTING MECHANISM—The CSRC will pursue reforms in the IPO pricing mechanism and underwriting process to prevent excessively high IPO prices and subsequent speculation and market manipulation. • STRENGTHEN CHINA’S PRICESETTING ABILITY FOR KEY COMMODITIES— The regulator has allowed the launch of silver futures on the Shanghai Futures Exchange and will explore the introduction of other new products such as a market for crude oil and other major commodities. (C) REGMI_Milan 2014
    • • EXPANSION IN OTC MARKET—Small and medium-sized non-public companies will be allowed to have their securities traded on a national over-thecounter market. (C) REGMI_Milan 2014
    • Thank  You (C) REGMI_Milan 2014