A Pathfinder: Banking and Finance in China


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A Pathfinder: Banking and Finance in China

  1. 1. A Pathfinder: Banking and Finance in China Introduction The remarkable success of China’s economic opening and reform aimed at transforming central planning to a market economy has made the country a focus of international attention. The country has become attractive for foreign participation because the reform, initiated first in 1979, has brought an impressive economic performance, an improving economic and financial structure, greater international contacts and competition, the country’s growing engagement in world economic affairs. An indispensable part of this reform is the evolution of the country’s financial system. The banking and financial system, from being virtual pre-reform central-bank domination to the present diversified and sophisticated interlacing networking, is a major contributor to the considerable progress in the overall growth of China’s economy. For example, the state-owned banks and other non-bank financial institutions have played an important role in distributing and redistributing the country’s resources through activities such as funds collection, control of capital flow, industrial and agricultural production development, foreign exchange and international settlement. Today with China’s successful bid for entry into the World Trade Organization (WTO), new economic opportunities will arise for foreign banks to operate in the China’s financial market. Thus, major financial institutions are undergoing another round of reform to adapt themselves to these changes. Their endeavors are paralleled by another wave of intense interest in the study of the future of the banking and financial sector in China as well as the possibilities and opportunities for foreign investment in this area. Will the financial sector succeed in their reorganization and how well will they perform in the new economic conditions? What effects will their reorganization have on their customers and on the country as a whole? How will foreign investments be affected after China’s entry into WTO? What channels will the entry created for foreign capital? While you will certainly come to your own conclusions, I just hope this pathfinder will aid your research process. Scope This pathfinder is intended to be of interest to those who want to know banking, banking and financial services, facilities and changes in the banking and financial sector in China, to those who want to maximize effective use of such services and facilities, to students in banking and to corporate executives and bankers who want to expand business into China. Its focus is on items that discuss the economic environment, the structure, reconsolidation, statistics and law of the banking and financial sector in China, sources containing critical analysis of China’s banking and financial system, and their implication for foreign investment. This pathfinder is designed primarily for use in an academic library, and is especially a guide to those sources available in the Academic Affairs Libraries at the University of North Carolina at Chapel Hill. Locations Sources mentioned in this pathfinder can be found at the following places: 1
  2. 2. Davis: Davis Library stacks Davis Ref: Davis Library Reference Davis Ref Desk: Items kept at/behind the Davis Library Reference desk Davis Basement: Federal documentations Law Library: Law Library stacks LC Subject Headings The following Library of Congress Subject Headings are used to search the on-line catalog to find materials on banking and finance in China. Banks and banking. Banks and banking – China China - Economic condition - 1976-2000 China - Foreign economic relations - United States Finance – China Financial services industry – China Investment, Foreign - China Monetary policy - China Browsing Areas These areas on the 5th Floor of the Davis Library and Law Library cover monographs, series and journals, either in English or in Chinese, on the Chinese financial system as well as critical analysis on the current banking and financial practices of the country. At the same time, these areas also host materials that discuss both the Chinese financial system and that of other countries and thus offer backgrounds for comparative studies. HG187 .C6 -- HG 201 .C48. Works on banking and finance in China as well as in East Asia; HG 3331 .C48 -- HG 3346 .C48. Materials on banks and banking history in Chinese version; KQN .940. Laws on banking in China (most of them are direct translation). Y4 .B22/1: 101-37 -- Y4 . B22/3: S .HRG .106-615. Federal documents on issues of Sino-U.S. trade relations, China's entry to WTO, permanent normal trade with China, World Bank lending to China and developments in Banking and Finance in China. Abstracts and Indexes These databases are used to search scholarly articles, news articles, government documents as well as committee investigation reports on the banking, banking system, financing as well as investment. Each database provides a variety of information on banking. Bibliography of Asian Studies. Ann Arbor: UM Digital Library Product Service, University of Michigan, 1971--1991. [http://eresources.lib.unc.edu/cgibin/external_database_auth?A=P|F=Y|URL=http://b as.umdl.umich.edu/b/bas/search.html] 2
  3. 3. This on-line version of the Bibliography of Asian Studies (BAS), updated quarterly, contains more than 410,000 records on all subjects (especially humanities and social sciences) pertaining to East, Southeast Asia. It allows users to narrow down their search by country/region, by subject, or by journal title. Citing from the most important 100 periodicals in Asian Studies, the database provides a much more exhaustive list of serious journal articles on banking and financing than many other similar databases. By doing a Boolean such as “(banking OR financing) and China,” the users can get bibliographic information on as many as 191 articles. However, the users should pay attention to the fact that the database only provides authors, titles, or subjects of publications without comments or abstracts. Therefore, it is hard for them to assess the content or to evaluate the potential relevance of the article. However, the great variety of journals where the citations regarding banking and finance of China come from is far enough to attract scholars or students. Business and Industry (BusIndustry) Via OCLC FirstSearch. 1994-present. [http://eresources.lib.unc.edu/cgi- bin/external_database_auth?A=P|F=Y|SCRIPT=FSAUTH=?db=BusIndustry] The Business and Industry database, updated continuously, covers all the primary business information sources--from leading trade magazines, newsletters, and the general business press to international business dailies. In this database users can find facts, figures, key events, news and financial, legal information on major Chinese banks, banking system as well as news of policies and political decisions concerning banks, investment companies and other financial institutions. Moreover, the database is connected to UNC online catalog system and, therefore, when the users locate the record of a journal article likely to be of interest, information about the library’s holdings of that journal title is directly accessible. When a key word search is done on “banking AND china,” 1758 hits are created. Some of the citations include notes and the inclusion helps the users to judge whether the article is relevant. Dissertation Abstracts Online. Ann Arbor: UMI Co., 1861--. [Electronic Access available trough UNC Libraries: http://eresources.lib.unc.edu/eid/EIDlist.cfm?letter=D] Dissertation Abstracts Online covers 1,560,000 dissertations accepted at accredited U.S institutions since 1861. The database is updated monthly. It selectively covers master’s theses, Canadian dissertations, and British and other European dissertations. There are 93 hits when searching for “(banking OR financing) AND China” as key words. These hits cover topics on cash flow, banks and budgets as well as legal structure of bank security. Encyclopedia and Dictionary The following sources enable the users to gain a general view of banking and finance in China. These sources are especially valuable for users who are not familiar with the banking situation in the country as they provide basic information on the banking system and internal and external banking environment. They also serve as a useful launch point for learning basic research skills and for embarking on research itself in light that most of them point to the users bibliographic references for further in-depth and serious research. 3
  4. 4. Encyclopedia Americana. Inte’l. ed. 30 vols. Danbury, CT: Grolier. v.6 p. 522-523. [Davis Ref. AE5 .E333 1999] Americana has 115 pages about China including 15 excellent articles. The article on banking and finance discusses the evolution of the central bank of China, its major functions and its delegation of power to several newly-established state-owned commercial banks. It is fairly updated. Americanna also points out the inseparable relations between state-owned enterprises (SOEs) and the central bank which services the accounts of all SOEs and other collectives. Moreover, it also includes descriptions on new development in the banking sector, say, the permission of establishing private commercial banks and foreign banks in China. Most of the topics covered in this article are discussed elsewhere either in monographs, journals or serials. Therefore, it can be considered as a good guide of further serious scholarly research activities. Bibliographic references are also included. Chung-kou chin jung pai ko ch'uan Shu [Encyclopedia of Chinese Finance]. 2 vol. Beijing: China Economic Press. 1990. [Davis HG187 .C6 C477 1990] This is the first comprehensive encyclopedia on finance in China. Compiled by professors, scholars and experts in the field of finance and banking, it is considered as an authoritative reference book for college professors and students. It has also become an indispensable reference for the business community. It includes 2394 entries, including many definitions of banking and financial terms as well as detailed articles on such topics as bonds, financial markets, the savings and loan industry, domestic and foreign banks, financial institutions and major corporations in China. However, the encyclopedia is printed in Chinese and the language may pose a great barrier to the users whose first language is not Chinese. The users are suggested to refer to the Fitzroy Dearborn Encyclopedia of Banking and Finance for general terms if those in Encyclopedia of Chinese Finance are hard to understand. The Fitzroy Dearborn Encyclopedia of Banking and Finance. 10th ed. By Charles J. Woelfel. Chicago, Fitzroy Dearborn, 1994. [Davis Ref. Desk HG151 .M866 1994 ] The encyclopedia is written for people who already have a reasonable knowledge of banking and finance. The articles are well-written and explain many arcane and complex financial and banking subjects in a concise and clear way. Though the focus of the source is on banking and finance in the United States, it can be used as an complement to Encyclopedia of Chinese Finance aforementioned. The New Palgrave Dcitionary of Money and Finance, 1992, Macmillan Press. Peter NewMan, Murray Milgrave and John Eatwell. [Davis Ref. HG151 .N48 1992] Compiled by more than 800 specialists in the field of banking and finance from 30 countries, the dictionary contains 1008 essays dealing a wide range of topics banking and finance and is considered as an authorities reference work. Targeting at teachers, researchers and business people, the dictionary provide them with a broad overview of specific subjects and extensive source in reports, presentations and speeches. An article of about 2,000 words discusses the monetary and financial system of China. It compares the system before and after the reform of 1978, talks about control of price, household savings, the progress in the national savings, recent diversification of the system. At the 4
  5. 5. same time, it also points out the weak side of the system, say, existence of credit quota, uneven macroeconomic management and unconvertible currency. Even though it was written 10 years ago, the article can be still considered accurate now. It provides the users some insightful information on the banking and financial system in current China. Moreover, at the end of the article are found cross references pointing to Hong Kong, Taiwan, Japan, Singapore and Korean: Monetary and Financial System. Federal Documents The following sources are hearings of Congress. They are considered as the most important primary legislative sources for research on the financial relations between China and the United States. All the items listed below are hearings conducted before the Committee on Banking, Housing and Urban affairs, United States Senate. United States. Congress. House. Committee on Banking, Finance, and Urban Affairs. Subcommittee on International Trade, Investment, and Monetary Policy. Export- Import Bank and trade with China : hearing before the Subcommittee on International Trade, Investment, and Monetary Policy of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, Ninety-fifth Congress, second session, on H.R. 8196 ... January 26, 1978. Washington : U.S. Govt. Print. Off., 1978. [Davis Ref. Federal Documents.Y4 .B22/1: Ex 7/24] Consisting of a series of statements submitted by representatives of business people in the year of 1978 when People's Republic of China decided to change its planned economy to market economy. The document is valuable to research on role of American business community in China’s economic reform as well as the reform’s impact upon the Chinese banking system. United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs. China's readmission to the World Trade Organization : financial services agreement: hearing before the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Sixth Congress, second session ... May 9, 2000. Washington : U.S. G.P.O. : For sale by the U.S. G.P.O., Supt. of Docs., Congressional Sales Office, 2000. Y [Davis Ref. Federal Documents. Y4.B 22/3:S.HRG.106-615] The hearing consists of a series of witness reports by the Secretary of U.S. Department of the Treasury, U.S Trade Representative, President of Securities Industry Association, Chairman and Chief Executive Officer on behalf of the International Insurance Council, Managing Director of International Corporate Banking Group, Bank of America Corporation on behalf of the Financial Services Roundtable. As China is subject to opening up its financial market further to foreign financial institutions, the document is therefore the primary sources for research on WTO, the opportunities it created for foreign banks and its impact upon the banking sector in China. Almanacs, Handbooks and Manuals The sources in this section are used to find concise factual information about banking sector in China. Even though most of the information in these sources can be found through the world wide web, newspaper, government documents or annual reports of 5
  6. 6. major financial institutions, almanacs and yearbooks tend to be the fastest and handiest way for the users to locate facts or summaries. The Banker’s Almanac. Reed Information Services. July 2001. [Davis Ref: HG 2984 .B3] Recognized as the standard work of reference for international bankers, the Almanac is published in full twice a year, in January and July. It consists of 6 volumes, with all international banks arranged in an alphabetical order in the first three volumes (International Banks), country index in Volume 4 and Volume 5 (Country Index), and authorized banks, owners, telegraphic addresses, name changes and liquidations, banking associations, banking lawyers, general information in Volume 6. Most of the information on China’s banks can be found in the first four volumes. With a bank name in mind, the users can search one specific bank in the “International Banks” section. Here the users would be able to find the address, history, ownership, standard settlement instructions, foreign branches, a simplified balance sheet of the latest two years. If the users do not know the name, they can refer to the Country Index. In the case of China, all banks are grouped by geographic locations, that is, the users need to know the place of the bank first and then be able to locate a specific bank in this section. Moreover, the users are supposed to refer back to the International Banks section if they need more specific information because only contact information is provided for each bank in Country Index. The McGraw-Hill Handbook of Global Trade and Investment Financing. McGraw- Hill, Inc. 1992. [Davis Ref: HG3753 .T85 1992] The target audience of the book is business executives in Europe, North America, the Far East, any developing nation. The first six chapters of the book deal with financing matters common to all countries and regions. The rest of the book covers financing alternatives in each of the major regions of the world. Financial options in China are discussed in Chapter 20. It discusses the effect of Tiananmen Square crackdown on China’s Economy, economic conditions after the event and options and risks under such conditions. Though the book is mainly designed for investors, it can also be an excellent source and a quick reference book for scholars and students who are interested in China’s financing conditions in 1980s. Standard & Poor’s Counterparty Rating Guide, McGraw Hill Com. 2001 [Davis Ref: HG 3751.5 .S698] Published four times a year, the Counterparty Rating Guide has been a standard book for bankers to look for the sovereign and corporate ratings for each country. Based on the ratings, bankers can effectively prevent risk and conduct risk control when doing financing. The source is good for scholars and students of banking and financing too as it provides quick references. In the case of China, most of the banks are rated as BBB or BBB+. However, it does not necessarily mean that banks in China are of high risk. To the contrary, as most of them are state owned, sovereign risk might be more pertinent. Frequently Mentioned Items 6
  7. 7. These items are used to gather additional information about the banking and finance in China. The authors of these books are considered renowned scholars of Chinese Study and their works are frequently cited by researchers. Lardy, Nicholas R. China’s Unfinished economic revolution. Washington, DC : Brookings Institution Press, 1998. [Davis, 5th Floor Stack: HC427 .92 .L373 1998] The author is a senior fellow in the Foreign Policy Studies program at the Brookings Institution. Focusing on the state-owned banks in China, the major component of China’s financial system, the author discusses their insolvency and their relations to the central government and offers ways to avoid bankruptcy of these banks. The approach of the book is a whole new one. He argues the fact is neglected by most research that state- owned banks for the last two decades have channeled a large share of sharply rising household savings into what are mostly unreformed, money-losing companies. The author suggests China must recapitalize and restructure its domestic banking system and end the long-standing practice of making lending decisions based on political rather than economic criteria. This timely book also analyzes the new reform initiatives China has launched in the wake of the Asian financial crisis, suggests additional steps that must be taken, and evaluates the implications for U.S. policy. Xu, Xiaoping. China’s Financial System under Transition. St. Martin’s Press, 1998. INC [Davis, 5th Floor Stack: HG187 .C6 X8 1998] Published in 1998, the book is an item in the series of “Studies on the Chinese Economy”, with Peter Nolan, Sinyi Professor of Chinese Management of University of Cambridge. The book examines the process of the financial reform and provides a comprehensive review of the transformation of the financial system. The reader will better understand the institutional development of the financial sector and thus obtain a firm basis for conceptualizing further reforms of the sector. Lees, Francis A. & Liaw, Thomos. Foreign Participation in China’s Banking and Securities Markets. Westpoint: Quorum Books, 1996. [Davis, 5th Floor Stacks: HG5782 .L44 1996] Being both renowned professors of Economics and Finance at the College of Business Administration at St. John’s University, Lees and Liaw coauthored the book which discusses key areas in which foreign participation is possible. Among the areas are the banking and financial institutions, securities and insurance markets. The authors have done a good analysis on the cause and effect of China’s opening channels for the entry of foreign capitals and on the role of foreign participation in boosting the banking and financing in China. The authors also explore the further investment possibilities in these areas. Tokley I. A. & Tina Ravn, Banking law in China. Hong Kong : Sweet and Maxwell, 1997. [Law Library, 1st Floor Stack: KNQ 940 .T65 1997] The authors select and translate key laws and regulations related to banking laws in China being aware that all legislations are not possible to be covered notwithstanding their efforts, and thus produce an easily transportable volume. The book makes itself an excellent reference tool for those who want to refer to law before they decide to establish 7
  8. 8. a foreign branch in the country. What makes the book more attractive than other law books is that it introduces the breathtaking changes which have occurred in China since 1979. Provision of the changes in the banking sector facilitates the reader’s better understanding of the laws. However, the translation of the legislation is not done scientifically but pragmatically enough to convey the meaning or spirit of the law. Journals The following journals frequently publish article analyzing the economic condition, new development, regulations and rules of banking and finance in China. Far Eastern Economic Review. (Hong Kong), Far Eastern Economic Ltd., 1947- (quarterly).[Davis, 5th Floor Stacks: HC411 .F8 (1962-present) and Davis Microfilm Coll, Serial 1-408 (1947-1956)] Chinese Economic Studies. White Plains, N. Y., 1967-1996 [Davis, 5th Floor Stack: HC426 .C485] Journal of Political Economy. University of Chicago Press, 1892- [Davis, 5th Floor Stack: HB1 .J7, Electronic Access available through UNC Libraries: http://eresources.lib.unc.edu/ejournal/EJlist.cfm?letter=J] China Economic Review. Greenwich, Conn. JAI Press, 1989-[Davis, 5th Floor Stack: HC426 .C482, Electronic Access available through UNC Libraries: http://eresources.lib.unc.edu/ejournal/EJlist.cfm?letter=C] Journal of Contemporary China. Princeton, NJ Center for Modern China, 1992- [Davis, Floor Stack: DS701 .J68, Electronic Access through UNC library:http://eresources.lib.unc.edu/ejournal/EJlist.cfm?letter=J] Websites I selected three websites due to their high authoritativeness and comprehensiveness as all of them are sites of government agencies or financial organizations. Each provides further links and connections to other sites for additional information. Development and Research Center of State Council’s site: [http://www.drcnet.com.cn/jingji/jrsc-a-index.htm] The site has six separate channels on macroeconomics, business economics, financial markets, investment analysis, stock news and current affairs, each of which contains relevant news, statistics and research reports. In addition to categories aforementioned, the channel on financial markets also includes analytical articles and comprehensive reference information. China’s National Bureau of Statistics home page: [http://www.stats.gov.cn] The National Bureau of Statistics is a central agency, directly under the State Council, responsible for statistics and national accounts of China. The users can find statistic information concerning banking and finance in China. The site provides data showing the 8
  9. 9. development of China's finance and insurance, including the following 6 parts: (1) The number of the institutions and personnel in the system of banking, insurance and rural credit cooperatives; (2) The financial activities of banks and rural credit cooperatives; (3) The changes of the interest rates of the deposits and loans; (4) The direct finance; (5) The international balance of payments in China. Four largest state-owned commercial banks’ home pages – The Bank of China’s website: http://www.bank-of-china.com; The Industrial and Commercial Bank of China’s website: http://www.icbc.com.cn; The Agriculture Bank of China’s website: http://www.abocn.com; The China Construction Bank’s website: http://www.ccb.com.cn . The users can use these websites to find financial products and services, contact information, organizational charts, foreign exchange rates, specializations, top management, bank history, etc. As the four state-owned banks are now engaged in international transactions and have a large number of foreign clients, their websites have both English and Chinese versions. 9
  10. 10. Report: Rationale Behind Source Choice of the Pathfinder Abstracts and Indexes: Academic Universe or Expanded Academic ASAP are very popular due to large number of full text articles on various topics. However, they are not the ideal sources for this pathfinder. Cited most of its articles from China Post, Taiwan Economic News and China on-line and Asia pulse, the e-data base focuses more on new developments of the financial sector of Taiwan and Hong Kong. News on mainland China only consists of a small portion of the 150 articles retrieved doing a “Banking and China” keyword search in its banking news category. In the case of Expanded Academic ASAP, most of the sources in this database come from the largest official news agency of China: Xinhua New Agency. Due to its affiliation with the central government, it is reasonable to consider most of its news articles are biased and thus unable to reflect the whole scene of the banking in China. Moreover, the length of most of the articles there ranges from 100 to 400 hundred words and can only be used as scholarly research though they might be of some value to investors. By drawing articles from world-renowned newspapers, newsletters, magazines (e.g. American Banker, Euro Money, Economics, Asian Wall Street Journal, etc.) and scholarly journals of Asian Studies (e.g. Journal of Political Economy, China Economic Review, etc.), Bibliography of Asia Study and BusIndustry overcome the shortcomings of the aforementioned database and achieve a balance in covering news and studies on mainland China, Taiwan and Hong Kong. Therefore, they provide the users a more objective, comprehensive and deeper view of the financial situations in China. Encyclopedia Britannica’s Macropaedia (v. 16) dedicates nearly 200 hundred pages to describing physical and human geography, history and provinces of China. One article discusses the topic of finance. In the article, the users can find major facts of the banking sector. It provides information on the historical evolution of the country’s central bank, namely, the People’s Bank of China and how it functions. It also provides a list of the country’s major state-owned banks and their major activities. The author of the article also discusses the positive impact of China’s economic reforms upon the banking sector and the role of foreign sources of capital coming from World Bank and several United Nations programs. However, most of the information is similar to that in Americana and the content is not as updated as that in Americana. That is the reason I chose Americana instead of Britannica in this pathfinder. There are many excellent encyclopedias dedicating to the topic of banking, money, and financial system in the Davis Library. But to my great dismay, most of them focus on the region in North American and Europe and thus make them not suitable for this pathfinder. For example, Encyclopedia of Money includes important monetary experiences that shaped the evolution of the banking system and that are considered interesting to the banking experiment. Users won’t find in the book important 10
  11. 11. developments of recent Chinese financial system but some pictures of ancient money 3,000 years ago. Almanac, Handbook and Manuals Moody’s International Manual provides a wide reference source for financial and business information in 117 countries. Corporate information in the manual includes company history, description of business and property, financial statement, management, debt, capital and other key data. It would have been included in this pathfinder if the manual included unlisted corporate. As most of the banks, insurance companies and other financial institution are not yet publicly listed, users will not find any relevant information in it. Dictionaries I did not include any dictionary that only provides terse definitions on banking and finance terms based on the assumptions that my target audience should have already had a large command of such terminologies. In case my assumption is not right, the users can always refer to The New Palgrave Dictionary of Money and Finance and The Fitzroy Dearborn Encyclopedia of Banking and Finance. Journals All of the journals chosen by this pathfinder are affiliated with institutions with a high reputation for their researches on China. For example, Journal of Contemporary China, published three times a year, is hosted by Center for Modern China of Princeton University. The program in China Study in this university is ranked the first across the nation, maybe all over the world. Only after strict peer review can articles be published in this journal and, as a result, the articles in it are of high quality and reliability. Websites: Numerous websites (e.g. http://www.sina.com. etc.) are now reporting financial news, analysis on financial development trends or some financial statistics. However, most of them are popular websites with general public as the target audience. Their purpose is more for entertaining and guiding a small sum of investment than for serious scholarly research or large scale capital investment. In addition, due to the fact that no one knows the author of the articles and the time they are posted, we should doubt their authoritativeness and currency. The websites in this pathfinder are free of these concerns as they are hosted by the government agencies or the organizations themselves. They are reliable and updated and can be used as sources for research or as information for managerial decision making. 11