People's Bank of China

10 Key excerpts on "People's Bank of China"

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  Reival: China's Finance and Trade: A Policy Reader (1978)

  A Policy Reader

  • Gordon A. Bennett(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  In its capacity as the state bank, the People's Bank keeps the accounts of the public administrations. It centralizes tax resources and deposits of the nationalized organizations. However, the bank is not in charge of debt recovery, which is the responsibility of the specialized administrative services.

  One of the important tasks of the bank is also to ensure correct commercial practices. In this respect, it plays the role of our clearing houses and our centers for postal checks. As indicated above, all sales by the nationalized industries have to be paid by transfer, and only salaries and certain purchases by commercial firms of agricultural goods for communes are settled in cash. Thus 85 percent of bank transactions take the form of transfers from account to account, the remainder being made up of withdrawals or deposits of notes.

  The Economic Functions Exercised by the People's Bank

  One of the goals pursued consistently by Chinese monetary policy seems to be a search for adapting solvency to the quantity of available goods. The adjustment of the offer of cash is accomplished, on the one hand, by a detailed examination of demands for business credit and, on the other hand, by systematic encouragement of individual savings.

  When studying a credit, the People's Bank rigorously controls the financial situation of the industry and the profitability of expected expenses. It sees to it that all sales have been settled, that the withheld liquidities do not exceed the budget, and that previously accorded credits have been used effectively. Expenses which produce treasury needs are subsequently carefully examined, with the bank advising the industry on the profitability of the planned transactions and the technical and financial means of achieving the most economical solutions. When the expenditures do not correspond to forecasts, the bank can demand immediate reimbursement of the agreed credits.

  Thus, the process of control of the bank can lead it to the exercise of too strong a control over the operations of industry. Since the Cultural Revolution, and particularly since 1970, the emphasis in articles published in the Chinese press has largely been on the role of administrative advisers that bank employees should assume. (8

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  China's Financial System

  Growth and Inefficiency

  • Dominique De Rambures, Felipe Escobar Duenas(Authors)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  In the after- math of the 2008 crisis, in the context of deepening recession and growing unemployment, it may be debatable that such a critical power is committed to an independent body without democratic mandate. In addition, to ful- fil its function, central banks resorted to new techniques under the guise of “quantitative easing” (buying government bonds and later corporate bonds) 1 As Milton Friedmann and Anna Schwartz wrote an influential book, A Monetary History of the United States, 1867–1960. China’s Financial System 23 far beyond their constitutional boundaries. The world crisis, the worst one since the 1930s, entailed a return of the State to the main stage. In this perspective, the highly centralized Chinese political system was to some extent ahead of other countries. China’s central government reacted much faster and more strongly than any other country; faster than the USA in the election year and much faster than the European Union. It combined the whole range of available instruments: government sub- sidies, bank loans, tax exemptions and salary rises. Several recovery plans were implemented in the following years. Eventually the global crisis hit the Chinese economy as well. The slowing down of the Chinese economy is due to a combination of two factors: a short-term one, i.e. the decrease in foreign (mostly Western) demand; and a longer-term one, i.e. the tran- sition process to a new economy focusing on household consumption, service industries and innovation. China’s Central Bank Statute Although China’s central bank, the PBOC (People’s Bank of China), is in charge of monetary policy and allocates all the necessary tools, monetary policy is defined by the State Council. All major decisions (interest rates, exchange rates, reserve requirements, open market policies) are taken by the State Council and implemented by the central bank. As a result, all or most of the key decisions are taken on political grounds rather than eco- nomic ones.

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  Chinese Banking Reform

  From the Pre-WTO Period to the Financial Crisis and Beyond

  • Chunxia Jiang, Shujie Yao(Authors)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The PBOC essentially com- bined the roles of the central bank and the commercial banks and its oper- ation was subject to strict cash and credit plans set in accordance with the production plans projected by the State Planning Commission. A few banks were established during this period without challenging the dominant status of the PBOC. The People’s Construction Bank of China was founded in 1954 as a subsidiary of the Ministry of Finance. Bank of China (BOC), which was founded in 1912, became a subsidi- ary of the PBOC exclusively dealing with foreign currency transactions since the 1950s. The Agricultural Bank of China (ABC) was established in 1951, but lately ceased to operate. These banks were wholly state owned and passively collected household savings and channeled funds to serve the state’s centrally planned production projects. Their opera- tions were driven by government goals and resultant needs rather than profit maximization, and as a result, normal commercial banking skills such as risk management and project selection were largely ignored. During this period, the banking system played only a limited role in promoting economic growth (Yang 2002). This centrally controlled mono-banking system lasted until 1978 when Deng Xiaoping started the economic reform and opening up pol- icy in China. Since then, the banking system has entered into a gradual reform period that can be divided into five sub-periods: (1) initial insti- tutional restructuring during 1979–1984; (2) specialized state-owned banking system during 1985–1994; (3) banking commercialization dur- ing 1995–2002; (4) banking modernization during 2003–2010; and (5) banking development in the post-crisis era.

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  Money, Banking, And Financial Markets In China

  • Gang Yi(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  PART ONE Financial System in China: An Overview 2 The Money and Banking System Before the Reform The banking system before the reform was characterized by an all-inclusive mono-bank system established in the 1950s. Under that system, the People's Bank served as both a central bank and a commercial bank, which controlled about 93 percent of the total financial assets of the country. The People's Bank of China acted as the center of cash, credit and settle-ment, from which currency and credit were issued, into which cash held by urban residents and credit held by state enterprises and institutions were deposited, and through which the payments within the state sector were cleared (Liu 1980). Although there were specialized banks under the People's Bank, such as the Agricultural Bank, Bank of China, and the People's Construction Bank, they were not independent. The People's Bank monopolized almost all banking activities. The specialized banks virtually served as depart-ments of the Peoples' Bank, or departments of the Ministry of Finance. During the 30-year period from the time the People's Republic was es-tablished to the beginning of the reform (1949-1978), there were several institutional changes to the banking system in China. However, the nature of the all-inclusive mono-bank system had never changed before the reform. The main task of the banking system was to provide working capital (circulating capital) to enterprises. The composition of national savings at that time was consistent with the above observation. The savings of the economy were mainly generated through the current account surplus of the state budget. In 1978, the savings provided by the government were 15.5 percent of GNP, whereas household financial saving was only 1 percent of GNP (De Wulf and Goldsbrough 1986). The total (cumulated) house-hold bank deposits was only about 6 percent of GNP in 1978 (Qian 1988). Therefore, the government saving was much larger than household saving at that time.

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  Understanding Organizational Fitness

  • Kaijun Guo, Paul Iles, Maurice Yolles(Authors)
  • 2016(Publication Date)
  • Information Age Publishing

    (Publisher)

  While this is happening, the banking system of the People's Republic of China is currently in transition, and this can be highlighted in four re- spects. First, it has been going through institutional changes. Four special State-owned banks have been converted into commercial banks, and three policy-based banks have been established since 1994. The stated-owned commercial banks, although still heavily regulated by the government, are gradually becoming more commercially oriented. There has also been insti- tutional diversification, with a rapid growth in the number and size of non- banking financial institutions. Second (Law, 1995), the independence of the central bank in implementing a monetary policy has been enhanced by the passage and implementation of the new People's Bank of China (PBC, central bank), and monetary control has been moving from direct to indi- rect control. The law also ended PBC financing of the fiscal deficit. A few years ago PBC abandoned the credit plan applied to the four State-owned commercial banks. Third, bank regulation is changing from an almost ex- clusive emphasis on economic regulation, such as checking compliance with credit plans and key financial ratios, to increasing emphasis on prudential regulation. The PBC issued a set of provisional rules in November 1997, establishing a board of supervisors to oversee the asset quality and manage- ment of Stated-owned commercial banks. It is also preparing to improve the portfolio of bank management by adopting international loan classifi- cation standards. Recently, the PBC took a high profile in fighting against China’s Banking Industry  35 malpractices of bank staff, and released a set of rules that penalized bank officials for violating regulation.

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  The Chinese Macroeconomy and Financial System

  A U.S. Perspective

  • Ronald M Schramm(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  The PBC utilizes a wider range of available tools for the conduct of monetary policy compared to the Fed. While the Fed relies primarily on open market operations to affect the federal funds rate, the PBC makes substantial use of other tools that we have described. By the end of 2012, however, the PBC had moved to a heavier reliance on open market operations.

  One important reason why China relies on a wider arsenal of monetary policy tools is related to the complexity of tasks undertaken. Keeping a fixed (or “crawling peg”) regime in place while at the same time controlling the money supply to curb inflation and manage economic growth requires controlling the flow of international capital (as we discuss in Chapters 3 and 8 ). Notwithstanding a sophisticated set of capital controls, China cannot let its interest rates stray too far from international rates lest the wall of capital controls be breached. This basic paradox creates a need for intervention in the economy at a variety of levels. How long China can maintain its balance in trying to achieve so many goals remains to be seen.

  Case Study 7.5: China’s “Big Four” Banks

  China’s largest four banks now rival the largest U.S. banks and are among the largest banks in the world as measured by assets (see Tables CS7.5a and CS7.5b). At one level, this is unremarkable given China’s enormous savings rate and limited alternative asset classes. It is remarkable because these banks were, until the late 1980s, not recognizable as independent entities but rather entities operating under the wing of either the Ministry of Finance or the PBC. All banks in China were among the first institutions to be nationalized after the founding of the PRC in 1949. Even today, the majority of shares in these institutions are owned by the government. For example, over 70 percent of Bank of China shares are state owned. Beginning in the 1980s, however, these banks gained increasing independence from direct government control, were allowed to accept individual deposits, and between 2000 and 2010 had each issued shares (IPOs) on domestic and international stock exchanges with small minority ownership.

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  The Rise of the People’s Bank of China

  The Politics of Institutional Change

  • Stephen Bell, Hui Feng(Authors)
  • 2013(Publication Date)
  • Harvard University Press

    (Publisher)

  Hence, despite substantial inertia and resistance, the key role of the PBC in building a modern financial infrastructure is significant. Through Huijin, the Chinese central bank drew on 10% of the foreign reserves and controlled more than half of the state’s financial assets, which enabled substantial financial reforms following the PBC’s own liberal agenda. The reforms, which aimed at weakening the central state’s dominance in the (distorted) market and transforming the domestic financial intermediaries into more market-oriented commercial institutions, have helped reassure international investors regarding China’s banking reforms. However, there are problems with this model, especially continued state intervention in the banking sector under the control of a more conservative MOF, and the bailout of securities companies that are owned by central and local governments, which could generate moral hazard. Overall, however, the PBC’s efforts have thus far laid a more solid foundation for China’s financial stability and development in a post-WTO era. Further substantial reforms are, however, required.

  Passage contains an image 12 Conclusion

  During an interview, a PBC official gave a vivid analogy of the politics of reform amidst transition, and the complex institutional challenges it entails: “China is very much like a giant leaking ship. We cannot stop and repair the ship, otherwise it is bound to sink. We have to mend it while it sails until reaching the shore. In other words, we have to reform amidst development, and to develop amidst reform. There is no other alternative.”1

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  Financial Systems At The Crossroads: Lessons For China

  Lessons for China

  • Wing Thye Woo, Yingli Pan, Jeffrey David Sachs(Authors)
  • 2014(Publication Date)
  • WSPC

    (Publisher)

  SECTION III DESIGNING THE RIGHT FINANCIAL SYSTEM FOR CHINA This page intentionally left blank This page intentionally left blank Chapter 7 The Great Accommodation: Chinese Central Banking in the New Millennium ∗ Junhui Qian and Wing Thye Woo Introduction and Summary The main objectives of People’s Bank of China (PBC) are, in Gov-ernor Zhou Xiaochuan’s words: (1) to maintain low inflation; (2) to keep appropriate economic growth; (3) to keep relatively low unem-ployment; and (4) to maintain external balance of payments. Among the four objectives, low inflation is the paramount one and receives the heaviest weight in policy deliberation (Zhou, 2012). 1 However, PBC’s low inflation agenda had to be carried out under the constraint of rapid expansion of the bank’s asset sheet. From 2000 to 2012, PBC’s foreign exchange reserve expanded almost 16 times, 21.3% annually in average. The external backdrop for the rapid accu-mulation of foreign exchange (forex) reserve, including the redistribu-tion of world manufacturing activity, is obviously outside PBC’s con-trol. Even the domestic policies that lead to the over-accumulation of forex reserve, including exchange rate setting and policies for attract-ing FDI, are determined at a level of decision-making that is above PBC in the hierarchy of economic management. ∗ We are grateful to Professor Pan Yingli’s encouragement and helpful discussions. 1 It is highly credible that the Chinese government and PBC are hostile to inflation. First, the Party dominated the revolutionary war after a hyperinflation eroded the power base of the once mighty Nationalist regime. This historical association is a permanent warning to the Party leaders. Second, if that remote memory is not deterrent enough, the severe inflation in the late 1980s almost undermined the reform agenda led by Deng Xiaoping. 229 230 J. Qian & W. T. Woo The PBC accommodated the extraordinary expansion of asset sheet with an unconventional expansion of liability sheet.

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  Sveriges Riksbank and the History of Central Banking

  • Rodney Edvinsson, Tor Jacobson, Daniel Waldenström(Authors)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  To put forward the reform, the State Council set up a leading team for the pilot of the shareholding reform of wholly state-owned banks. The office of the leading team was located in the PBC head office, responsible for studying and designing the reform scheme as well as coordinating with different participants. The aim of the privatization of state-owned banks was to improve the corporate governance structure and make state-owned banks more competitive. To achieve this goal, the PBC proposed to inject foreign reserves into these banks to improve their balance sheets in preparation for going public, and further cooperated with other ministries to study the 444 The People’s Bank of China: From 1948 to 2016 scheme of establishing four state-owned asset management corporations to liquidate and reduce their non-performing loans (NPLs) and list the banks on the A-share and H-share markets. Till the end of 2010, all of the “Big-Five” banks (namely, the ICBC, BOC, CCB, ABC and BComm) have been listed on both A-share and H-share markets (see also, e.g., Allen et al., 2012, 2015). 13.5.4.2 Interest Rate Liberalization Many central banks around the world have controlled interest rates and credit allocation in their recent history. While these restrictions were put in place to maintain financial stability and support development, they also reduced the borrowing costs of governments by imposing low interest ceilings, which may have further led to inefficient intermedia- tion and lower growth (see, e.g., Caprio, Atiyas, and Hanson, 1994; Caprio, Hansan, and Honohan, 2001). Most central banks removed these restrictions after experiencing macroeconomic crises (Feyzioglu, Porter, and Takats, 2009). Similarly, repressed interest rates underlie structural imbalances and distortions in China’s economy and, further, led to the fast growth of the shadow banking sector in recent years (Lin and Zhou, 1993; Hachem and Song, 2016; Wang et al., 2016).

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  China's Financial Markets

  An Insider's Guide to How the Markets Work

  • Salih N. Neftci, Michelle Yuan Menager-Xu(Authors)
  • 2006(Publication Date)
  • Academic Press

    (Publisher)

  11 People’s Bank of China, Highlights of China’s Monetary Policy in the First Quarter of 2005 , June 16, 2005. China’s Money Markets: Policies and the Banks 99 and an amount at the current exchange rate (8.27 RMB = $1) roughly equal to $414 billion. Outstanding corporate bond issues were strikingly low, compris-ing only about 1% of total bonds outstanding, or about $4.3 billion. Corporate bond growth has lagged, for several reasons: (a) Access to the market is restricted by the government issue, as well as participation in the secondary market; (b) the government is extremely cautious, owing to experiences with default in the early 1990s; (c) corporate bond rates are still restricted, at present limited to 140% of the bank savings rate; (d) there is only one rat-ing agency, which is state owned. On the positive side, some encouraging indications include the fact that local enterprises have been permitted to issue bonds, there is some easing of restrictions on the purpose for which the funds have been raised, and the issue process has become more streamlined, with features such as paperless issue, electronic settlement systems, and registration of custody. 3.4.6 F INANCING B ONDS Financing bonds are issued mainly by policy banks, but they can also be issued by commercial banks, finance companies, and other financial institu-tions. Financing bonds may be issued in the national interbank bond market or to targeted investors. Institutions may not issue financing bonds without approval of the PBC. They must submit annual application for approval by the PBC. The China Clearing Company provides registration and trust services. Financing bonds are issued by three “policy banks” (China Development Bank, which accounts for the larger share, the Export-Import Bank of China, and the Agricultural Development Bank). Financing bonds recently have accounted for about a third of debt outstanding in China.

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