Chinese financial system
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China's financial system is highly regulated and has recently begun to expand rapidly as monetary policy becomes integral to its overall economic policy. As a result, banks are becoming more important to China's economy by providing increasingly more finance to enterprises for investment, seeking deposits from the public to mop up excess liquidity, and lending money to the government.
As part of US$586 billion economic stimulus package of November 2008, the government is planning to remove loan quotas and ceilings for all lenders, and increase bank credit for priority projects, including rural areas, small businesses, technology companies, iron and cement companies.
- 1 Financial reform
- 2 Economic reform
- 3 Government finances and budget
- 4 Taxation
- 5 Inflation
- 6 Banking sector
- 7 Banking reform
- 8 Foreign banks
- 9 Stock exchanges
- 10 Development
- 11 Trade balance
- 12 Balance of payments
- 13 External debt
- 14 Currency and foreign exchange control
- 15 Fiscal year
- 16 Insurance
- 17 See also
- 18 References
- 19 Further reading
- 20 External links
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For the past few decades, the People's Bank of China has exercised the functions and powers of a central bank, as well as handling industrial and commercial credits and savings business; it was neither the central bank in the true sense, nor a commercial entity conforming to the law of the market economy. But since reform and opening-up began in 1978, China has carried out a series of significant reforms in its banking system, and strengthened its opening to the outside world. Consequently, the finance industry has made steady development. At the end of 2004, the balance of domestic and foreign currency savings deposits stood at 25,318.8 billion yuan and the balance of home and foreign currency loans came to 18,856.6 billion yuan. Now China has basically formed a financial system under the regulation, control and supervision of the central bank, with its state banks as the mainstay, featuring the separation of policy-related finance and commercial finance, the cooperation of various financial institutions with mutually complementary functions.
In 1984, the People's Bank of China stopped handling credit and savings business, and began formally to exercise central bank functions and powers by conducting macro-control and supervision over the nation's banking system. In 1994, the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China and the China Construction Bank were transformed into state-owned commercial banks; and three policy-related banks were founded, namely, the Agricultural Development Bank of China, the China Development Bank and the China Import and Export Bank. In 1995, the Commercial Bank Law was promulgated, creating the conditions for forming the commercial bank system and organizational structure, and providing a legal basis for changing the specialized state banks to state-owned commercial banks.
Since 1996, the financial organizational system has gradually been improved; the wholly state-owned commercial banks have been transformed into modern financial enterprises handling currencies; over 120 shareholding medium and small-sized commercial banks have been set up or reorganized; and securities and insurance financial institutions have been further standardized and developed. April 2003 saw the formal establishment of the China Banking Regulatory Commission (CBRC). Since then, a financial regulatory system has been formed in which CBRC, China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC) work in coordination, each body having its own clearly defined responsibilities.
In January 2004, the State Council decided that the Bank of China and the China Construction Bank would start the experiment of transforming the shareholding system. The main tasks are to establish a standardized corporate governance and an internal system of rights and responsibilities in accordance with the requirements for modern commercial banks; to restructure the financial system, speed up the disposal of non-performing assets and to reinforce minimum capital requirement to build up first-class modern financial enterprises. Now, six shareholding commercial banks and urban commercial banks in China have begun to accept overseas investors as shareholders.
Opening up of the financial industry
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Over the past 20-odd years,[when?] China's financial institutions in the Special Economic Zone, coastal open cities and inland central cities have approved a range of wholly foreign-owned and Chinese-foreign joint venture financial institutions. Every year since 2002, China has increased the number of cities where foreign banks are allowed to handle RMB business, and within five years such banks will be allowed to handle RMB business in any city. At the end of 2004, the total assets of foreign financial institutions in China reached over US$47 billion; foreign banks were allowed to handle RMB business in 16 areas, and 62 foreign banks from 19 countries and regions set up 191 business institutions in China, of which 116 were approved to handle RMB business. There were 211 foreign bank branches in China.
The CSRC has approved the establishment of 13 Sino-foreign equity joint venture fund management companies, and started to formally handle the application of establishment of joint venture fund management companies with a maximum 49 percent foreign share; the CIRC declared that: from December 11, 2004 on, foreign insurance companies could handle health insurance, group insurance, life insurance and annuity insurance businesses; regional restrictions on establishing wholly foreign-funded insurance institutions were canceled and the proportion of the foreign share in joint venture insurance agencies was allowed to reach 51 percent.
Foreign banks have expanded their China-related business scope. In November 2003, the CBRC started to implement new policies, e.g., permitting foreign banks to provide RMB services to all kinds of Chinese enterprises in areas with open RMB business (previously, these banks' RMB services were restricted to foreign-funded enterprises, foreigners and people from Hong Kong, Macao and Taiwan in cities with open RMB business). The new policy also encourages qualified international strategic investors to join the restructuring and reforming of China's banking and financial institutions on a voluntary and commercial basis.
Meanwhile, all China's commercial banks have set up branches overseas, and started an international credit business. The Bank of China ranks first in the number and scale of overseas outlets. In 1980, China resumed membership of the World Bank, and returned to the International Monetary Fund. In 1984, China started business contacts with the Bank for International Settlements. In 1985, China formally joined the African Development Bank and in 1986 formally became a member of the Asian Development Bank.
In August 2013 creation of an as yet unnamed high-level body to gather and analyze financial information and trends was announced by the central government. The central bank would participate as would people from other organizations engaged in financial matters. It would not have direct regulatory authority, but would attempt to function at the highest professional level in order to provide appropriate guidance to regulators with respect to matters such as shadow banking which are potential sources of instability.
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The ongoing development of China's financial system will play a critical role in the country’s effort to narrow social disparities and pursue balanced growth. Reforming the financial system would increase the rate of GDP growth and help spread China’s new wealth more evenly. If the reforms directed additional funds to private companies — China's new growth engine — the economy would generate significantly higher returns for the same level of investment and GDP would rise. Such a shift will stimulate mass job creation in the strongest areas of China's economy and increase tax revenues to finance social programs.
After more than a quarter century of reform and opening to the outside world, by 2005 China’s economy had become the second largest in the world after the United States when measured on a purchasing power parity (PPP) basis. The government has a goal of quadrupling the gross domestic product (GDP) by 2020 and more than doubling the per capita GDP. Central planning has been curtailed, and widespread market mechanisms and a reduced government role have prevailed since 1978. The government fosters a dual economic structure that has evolved from a socialist, centrally planned economy to a socialist market economic system, or a "socialist market economy with Chinese characteristics". Industry is marked by increasing technological advancements and productivity. People’s communes were eliminated by 1984 — after more than 25 years — and the system of township-collective-household production was introduced to the agricultural sector. Private ownership of production assets is legal, although some nonagricultural and industrial facilities are still state-owned and centrally planned. Restraints on international trade were relaxed when China acceded to the World Trade Organization in 2001. Joint ventures are encouraged, especially in the coastal Special Economic Zones and open coastal cities. A sign of the affluence that the reformed economy has brought to China might be seen in the number of its millionaires (measured in U.S. dollars): a reported 236,000 millionaires in 2004, an increase of 12 percent over two years earlier.
Chinese officials cite two major trends that have an effect on China’s market economy and future development: world multipolarization and regional integration. In relation to these trends, they foresee the roles of China and the United States in world affairs and with one another as very important. Despite successes, China’s leaders face a variety of challenges to the nation’s future economic development. They have to maintain a high growth rate, deal effectively with the rural workforce, improve the financial system, continue to reform the state-owned enterprises, foster the productive private sector, establish a social security system, improve scientific and educational development, promote better international cooperation, and some believe, change the role of the government in the economic system. Despite constraints the international market has placed on China, it nevertheless became the world’s third largest trading nation in 2004 after only the United States and Germany.
The Fifth Plenum of the Sixteenth CPC Central Committee took place in October 2005. The Fifth Plenum approved the new Eleventh Five-Year Plan (2006–10), which emphasizes a shift from extensive to intensive growth in order to meet demands for improved economic returns; the conservation of resources to include a 20% reduction in energy consumption by 2010; and an effort to raise profitability. Better coordination of urban and rural development and of development between nearby provincial regions also is emphasized in the new plan.
Government finances and budget
China has a budget deficit of around 1.5% of GDP. China projected a budget deficit of 295 billion yuan in 2006, down 1.7% from 2005. The overall budget deficit in 2004 was approximately US$26 billion, an amount equivalent to about 1.5% of GDP. In 2007, economic planners expect China's already small budget deficit to shrink again. According to economists, this has afforded China to spend more on public services such as education and healthcare.
The government budget for 2004 was US$330.6 billion in revenue and US$356.8 billion in expenditures. 95.5% of revenue was from taxes and tariffs, 54.9% of which was collected by the central government and 45% by local government. The expenditures were for culture, education, science, and health care (18%); capital construction (12%); administration (14%); national defense (7.7%); agriculture, forestry, and water conservancy (5.9%); subsidies to compensate for price increases (2.7%); pensions and social welfare provisions (1.9%); promotion of innovation, science, and technology (4.3%); operating expenses of industry, transport, and commerce (1.2%); geological prospecting (0.4%), and other (31.9%).
Before the reform and opening, China exercised a single taxation system. Because taxation had no connection with the economic activities of enterprises, this system lacked vitality. In 1981, the Chinese government began to collect income tax from Sino-foreign joint ventures and solely foreign-funded enterprises, taking the first step in taxation system reform. From 1983 to 1984, the reform consisting of the replacement of profits by taxes was carried out in domestic enterprises, and a foreign-related taxation system was set up. As a result, instead of a single tax category, a compound taxation system in which turnover and income taxes were the mainstay and other tax categories were in coordination with it was initially in place and promoted the control of finances and the economy. In 1994, the reform of the taxation system was deepened, and a complete structural adjustment of the taxation system was made by taking the market economy as the norm. In 1996, China lowered the rate of customs duties and export drawback, and exercised import supervision.
China’s annual rate of inflation averaged 6% per year during the 1990–2002 period. Although consumer prices declined by 0.8% in 2002, they increased by 1.2% in 2003. China’s estimated inflation rate in 2006 was 1.8%.
China's banking system is highly regulated with six major banks, each having specific tasks and duties. The People's Bank of China is the largest bank in China and acts as the Treasury. It also issues currency, monitors money supply, regulates monetary organizations and formulates monetary policy for the State Council. The Bank of China manages foreign exchange transactions and manages foreign exchange reserves. The China Development Bank distributes foreign capital from a variety of sources, and the China International Trust and Investment Corporation (CITIC) was previously a financial organization that smoothed the inflow of foreign funds, but is now a full bank, allowing to compete for foreign investment funds with the Bank of China. The China Construction Bank lends funds for capital construction projects from the state budget, and finally the Agricultural Bank of China functions as a lending and deposit taking institution for the agricultural sector.
Financial reform in China's banking sector include the introduction of leasing and insurance, and operational boundaries are being slowly eroded to promote competition for customers who are now permitted to choose banks as well as hold accounts in more than one bank.
Banking reform was initiated in China in 1994, and the Commercial Banking Law took effect in July 1995. The aims of these actions were to strengthen the role of the central bank—the People’s Bank of China—and to allow private banks to be established. The People’s Bank of China was established in 1948. It issues China’s currency and implements the nation’s monetary policies. China’s oldest bank, founded in 1908, is the Bank of Communications Limited, a commercial enterprise located in Shanghai. China’s second oldest bank was established in 1912 as the Bank of China. Since 2004 it has become a shareholding company known as the Bank of China Limited and handles foreign exchange and international financial settlements. The Agricultural Bank of China, founded in 1951, is mainly involved in rural financing and the provision of services to agricultural, industrial, commercial, and transportation enterprises in rural areas. Other major banks include the China Construction Bank; established in 1954 as the People’s Construction Bank of China, it has been a state-owned commercial bank since 1994 and maintains some 15,400 business outlets inside and outside China, including six overseas branches and two overseas representative offices. The China Construction Bank was restructured in 2003 into a shareholding bank called the China Construction Bank Corporation, with the state holding the controlling shares.
CITIC was founded in 1979 to assist economic and technological cooperation, finance, banking, investment, and trade. The Industrial and Commercial Bank of China was founded in 1984 to handle industrial and commercial credits and international business. The Agricultural Development Bank of China, Export and Import Bank of China, and State Development Bank all were founded in 1994. China’s first private commercial national bank, the China Minsheng Banking Corporation, was opened in 1996. Commercial banks are supervised by the China Banking Regulatory Commission, which was established in 2003. In 2005 the commission announced the launching of a new Postal Savings Bank to replace the old system and its more than 36,000 outdated outlets nationwide.
In the online realm, China's e-commerce industry has grown more slowly than the Europe and the US, with a significant period of development occurring from around 2009 onwards. According to Credit Suisse, the total value of online transactions in China grew from an insignificant size in 2008 to around RMB 4 trillion (US$660 billion) in 2012. Alipay has the biggest market share in China with 300 million users and control of just under half of China's online payment market in February 2014, while Tenpay's share is around 20 percent, and China UnionPay's share is slightly greater than 10 percent.
Since the inception of the "open door policy", a number of foreign banks have been permitted to open their doors in major cities in China. However, these are largely representative branches, with only a few being permitted to carry out branch functions in Shanghai and Shenzhen. Their participation in China's financial system has been limited, but as China starts to borrow more from abroad, their role may become greater in the future.
When first permitted in the mid-1980s, foreign banks were restricted to designated cities and could deal only with transactions by foreign companies in China. After those restrictions were loosened following China’s accession to the World Trade Organization in 2001, some foreign banks have been allowed to provide services to local residents and businesses. In 2004 there were some 70 foreign banks with more than 150 branches in China. In 2007 a limited number of foreign banks were allowed to issue debit cards in China (and Bank of East Asia was allowed to issue a credit card). This made banking with a foreign bank more convenient, as money in accounts could be accessed at ATMs like customers of local banks could. In 2009 this number grew to six, but only two of these are not tied to Hong Kong.
There are stock exchanges in Shanghai (the third largest in the world), and Shenzhen and futures exchanges in Shanghai, Dalian, and Zhengzhou. They are regulated by the China Securities Regulatory Commission.
In 1990 and 1991, China set up stock exchanges in Shanghai and Shenzhen. In the past decade, the Chinese stock market has completed a journey that took many countries over a century to cover; China's stock market today has capital approaching 3,705.6 billion yuan, 1,377 listed companies and 72.16 million investors.
The Chinese stock market has promoted the reform of government-owned corporations and the change of their systems, and enabled a stable transition between the two systems. On the strength of the stock market in the past decade, many large state-owned enterprises have realized system change.
The change also has stimulated medium and small-sized state-owned enterprises to adopt the shareholding system, thus solving the most important issue - the system problem - during the transition from planned to a market economy. As for ordinary citizens, bank deposit is not the only way to put their money, the stock market has become one of the most important channels for investment.
Methods of stock trading are constantly being improved. Today, a network system for securities exchange and account settlement has been formed, with the Shanghai and Shenzhen exchanges as the powerhouse, radiating to all parts of the country. In 2004, China issued 123 kinds of A share, and 23 rights issues, collecting a total of 83.6 billion yuan; and 28 kinds of B and H shares, collecting a total of 67.5 billion yuan.
As China's economy becomes more integrated with the rest of the world its financial system will become more in line with international practices. China has also learnt from Hong Kong's financial system, with the help of the Hong Kong Monetary Authority.
China had a favorable balance of trade of US$32 billion in 2004 and US$38.7 billion in 2003. These amounts reflect the general course of a favorable trade balance during the previous eight years. In 1996 China’s trade balance was US$12.2 billion, peaking at US$43.4 billion in 1998 but declining to US$24.1 billion by 2000 before starting its new increase.
Balance of payments
China’s current account balance in 2004 was nearly US$68.7 billion. Added to this total was US$54.9 billion in foreign direct investment (exceeding that invested in the United States). When other investments, assets, and liabilities are brought into the calculation, the overall balance of payments was US$206.1 billion in 2004, compared with US$75.2 billion in 2002 and US$116.5 billion in 2003.
According to United Nations statistics for 2001, China’s external and public, or publicly guaranteed, long-term debt had reached US$91.7 billion. China’s debt had grown steadily during the 1990s, peaked at US$112.8 billion in 1997, and then declined annually thereafter. By 2004 China had US$618.5 billion in its international reserve account, 98.6 percent of which was from foreign exchange, not including the Bank of China’s foreign exchange holdings.
The Financial Economic Journal article: "Law, finance, and economic growth in China" by Allen and Qian (2005), critically and creatively evaluates through comparisons and inferences on China’ alternative institutional arrangement, governing systems, law, and formal financial system,. It also assesses the relationship between China’s economic growth and other countries’ financial development systems. such as the Stock Market. Contemporary studies cited on China's legal and fiscal systems establishments indicate signs of underdevelopment despite the rapid economic growth compared to other countries. (Liang & Teng, 2006). For instance, the Chinese private sector grow is less inclusive equated to other Listed and State sector thereby demanding transformation to eliminate deficiencies. Comparatively, the Chinese State and listed sectors indicate successful development based on alternative mechanisms employed to build institutional relationships and reputation for other economies. Consequently, exposure of the key factors connecting the Chinese formal systems, financial, law, and economic growth lead to an understanding of how the nonstandard mechanisms impacts on promoting optimal growth and development for China and other countries (Allen, Qian & Qian, 2005).
Broadly, the article employs scholarly evidence to explore China’s legal, financial and growth sectors visualizing the Status of Chinese economic based on GPD and growth to contrast the issue against the emerging economies rather than the developed ones. Allen, Qian, and Qian, explore the Chinese firms’ financial sources based on aggregated evidence as well as cross-cross country evidence on annual growth rates, Purchase Power Parity, and population density. They also access evidence on both Listed and Private Sector to demonstrate different types of the corporate governance, stocks, ownership structures, financing, valuation, and dividends. Survey and anecdotal evidence, for example, were used by the author to provide background information on the successful regions evaluated as a justification of the findings and results obtained.
Agreeing with the Article Argument: Analyses on the authors’ argument in the article indicate delivery of facts, figures, and substantiation from an informed and expert position, which make it worth agreeing with the authors’ arguments. The article covers the visualization of China’ as an alternative institutional arrangement, with different governing systems, law, and formal financial system. These areas form China’s economic growth and relate well with its development targets and agenda. They are also factual through the use of figures and numbers and can be measured scientifically, socially and politically given the current chine’s position as an emerging economy and as an influence in the world economy. The second reason for agreeing with the article is a result of the examinations provided in the three major economic sectors that include the state and government controlled companies and enterprises, the publicly traded and exchange sector called listed and the private sector, which is under private ownership. In reviewing the imbalance of the three sectors, and the support for private sector, the article is keen on using measures that include banking systems’ domination and the ongoing privatization process. It samples more than 1000 firms, listed and traded on the Shanghai Stock Exchange (SHSE) and Shenzhen Stock Exchange (SZSE) with an indication of concentrated equity on State for firms converted from the State Sector and founder families for the private firms (Allen, Qian & Qian, 2005). As demonstrated from the research by Liang and Teng (2006), the status of the Chinese economy, which is also the position of the article, make it among the most impactful in the world. The country's growth domestic Product (GDP) in 2002 stood at U.S $1,237 ahead of Canada and Spain but now is at $11,391.620 only behind the United States (China GDP, 1960-2016). The feat is remarkable given that China’s rapid growth only started in 1979. Other comparisons in the article indicate the same effect of fast Chinese growth. On the legal system, China classifies as an English-origin, which is true given the protection offered to investments and the upholding of creditor and shareholder rights. These attributes, also proclaimed by Liang and Teng, (2006) contribute to strengthening the financial system allowing venture in various finance and capital markets and line with the country's equity versus the population. The mitigation measures outlined in the article such as the formation of the state-owned asset management companies assigned to cash recovery on the bad loans and improving loan structures. Based on an outright reliability of the authors’ point of view the’ findings and results, I find them accurate and reliable to generalize or use for future studies. One way for this is the referencing from credible sources such as financial, law and politic journals, empirical perspectives, case studies and renowned authors among others further justifying the article’s standpoint. For instance, the authors employ both survey and anecdotal evidence to obtain the background information about the most successful regions or sectors in China.
Evaluating the authors’ argument persuasiveness based on the consistency of point made for the authors' key inferences and assumptions. The general assumption made by the authors while exploring the topic of research is that the economic status, legal systems and financial system of a country affect the overall economic growth and development. The brief description of the authors’ variables and sources, strong inferences and conclusion serves as the best tool and build up in building the authors’ arguments. For this reason, I concur with the authors’ arguments on the topic of study about China’s financial, legal and economic growth.
Reflection on the Economic and Financial in China: Statistically, an economic and financial study of China’s financial, law, institutions and economic growth in shows that China serves as a counter example in analyzing weak financial and legal systems despite fastest growing economies Liang & Teng, 2006). The economic and financial phenomenon as learned in previous literature tends to support market-based systems where openness and the role of the state play an important part in the country’s financial system development. From a deregulation and financial liberalization point of view, relational, financial systems are regarded as a better approach for long-term Chinese economic development compared to a market-based system (Bruton & Ahlstrom, 2003). In this regard, the Chinese economic growths evolve as the financial systems progress with the financial globalization changes and the alterations of the Chinese power relationships (Bruton & Ahlstrom, 2003).,Also, the economic politics affects financial systems directly. The economic and financial systems constitute financial institutions and market arrangements that channel the country’s savings for corporate governance and productive uses. Though, as asserted by (Lee, 2015), the positive correlation between economic and financial development result to better monitoring and allocation of financial resources where financial systems are either categorized as bank-based or market-based. Therefore, similar financial market development and banks influence on the economic outcome. Chinese lower economic performance compared to the developed economies is as a result of inadequate financial and legal systems based on its inefficiency market-based system (Lee, 2015). This is an indication of a high moral hazard that exposes the government policies to economic fragility and financial crisis.
While no financial system is complete, each of the Chinese market and bank-based financial systems has its benefits and disadvantagesMarket-based financial systems are considered stronger and better compared to bank market systems as they can generate adequate data about different firms' performance as well as reflecting on all the fundamentals requirements in a real financial sector (Lee, 2015). The components of the stock market are use essential in the effective financial motoring process atas they can visualize market stock prices and potential bad economic performances (Bruton & Ahlstrom, 2003). Therefore, maximizing the stock market values by firms has a positive implication of improving the economic growth and performance. However, financial market success gives a better reason for corporate groups to allocate resources to their affiliate firms. This reason, China uses bank loans and self-fundraising commercial channels as financial channels to finance Chinese, companies consequently determining the stock market bottom line through price speculations that lead to high transaction costs (Lee, 2015). Evaluation of the Chinese bank-based systems benefits and their particular limitations demonstrate that the existing financial debts help in solving cash flow misreporting as it exerts economic disciplinary effect. Alternative governance and financial mechanism serve as a turning point in supporting the growth and development of the Chinese private sector through reputation and relationship that enable firms to overcome asymmetric data problems that inhibit contract enforcement and coalitions. Cultural and religious factors also play a significant role in investors’ protection, institutional development and legal origin in venturing capital industry growth and development. (Bruton & Ahlstrom, 2003). To add to these factors, the Chinese economic situation has high social trusts that serve as an alternative mechanism for the development of substantial financial incentives to increase economic participation. Product and input market competitions work successfully in the country by creating a relatively strong comparative advantage for organization thriving and survival. Moreover, the existence of low entry barriers promotes high levels of market competitions allowing companies to grow and develop economically. The financial, legal, and economic environment control and ownership separation protect shareholders in countries with dominant ownership structures. such as China. At the same time, input suppliers cooperation by forming market compliances and coalitions ensures the optimal outcome of financing and legal systems. (Bruton n& Ahlstrom, 2003). However, profit sharing among the firms enables firms’ growth, reputations, and contractual agreement. As a transitional economy, China and its firms have to adjust both their financial and legal systems to strengthen their economic growth and development. The result will be a diversified commercial work for the transitional economy that is likely to work regardless of the socialistic Adopt drastic economic reforms such the Chinese economy may not work due to the Confucius's influence that essential changes in society should be gradual and fully implemented only after they prove correct, thus reinforcing the existing financial and legal systems Through analyzing different governance systems and their economic support, much can be learned from the Chinese Communist Party based on its autocratic nature, but with the ability to support and promote financial and legal systems for economic growth especially for Private Sector. The government plays a significant role in financial, legal and economic growth reform process especially for transitional and socialist economies. (Liang & Teng, 2006). As socialist governments experience limited support for economic grow progression, much can be observed from democratic economies and richer countries in supporting financial and legal systems. (Liang & Teng, 2006). For instance, the government officials play a vital role in implementing alternative governing mechanisms and institutional arrangements for the development of financial and legal systems and should be consulted for efficient implementation of an alternative mechanism for economic development. They also help incorporate the three pillars of financial and legal system constructions entailing information systems, legal environment, and market support system. The Chinese legal environment allows normal market operations as information systems address asymmetric constructs based on information credibility and authoritativeness (Bruton &Ahlstrom, 2003). Finally, market support systems allow investors in alternative mechanisms to improve their experiences and expertise.Suggestions for Future Reforms Economic Financial Phenomenon in China: The future financial and economic reforms should be directed towards the liberalization of financial and economic matters as globalization takes effect in many countries. Future studies need to encourage China’s successful Private Sector transformation to better alternative methods in the state deficiency and listed sectors As suggested by Lee (2015), it is imperative that future explorations on financial opening, liberalization and globalization conducted to visualize proficient financial adjustments that include changes in financial systems, handling a crisis, and alterations in the legal functions. It is equally important to implement better legislative policies that strengthen the pillars of financial and juridical systems construction such as education, information systems, money control, the legal environment, and support market systems. As a populous nation, there is a need to have reforms in areas including social welfare, housing, insurance, employment policies and the state-owned enterprises, which affect the financial system. These will be achieved through initiating favorable determinant areas that include taxation, foreign investment policy, exit policy, power to make decisions, and decentralization thereby ensuring credibility and disclosure of vital information connect economic growth, finance, and legal systems. It is expected that the reforms will be pragmatic due to the obvious basis of experimentation of rather than the use of ideology in China, but adopting a more rapid and privatized system that leases operation of the state-owned assets (Lee, 2015). Consequently, the move will promote efficiency for the enterprises and allow or encourage the development of other non-state and foreign sectors that highly account for China’s economic growth.[excessive quote]
Currency and foreign exchange control
China’s currency is the renminbi (RMB, "people’s currency") or yuan. The interbank exchange rate on August 1, 2006, was US$1 = RMB7.98. The RMB is made up of 100 fen or 10 jiao. Coins are issued in denominations of one, two, and five fen; one and five jiao, and one RMB. Banknotes are issued in denominations of one, two, and five jiao; and one, two, five, 10, 50, and 100 RMB.
The Renminbi is issued and controlled solely by the People's Bank of China. RMB exchange rates are decided by the People's Bank of China and issued by the State Administration of Foreign Exchange, the latter exercising the functions and powers of exchange control.
In 1994, China reformed the foreign exchange system, combined the RMB exchange rates, adopted the bank exchange settlement system and set up a unified inter-bank foreign exchange market. On this basis, China included the foreign exchange business of the foreign-invested enterprises in the bank's exchange settlement system in 1996. On December 1, 1996, China formally accepted Article 8 of the Agreement on International Currencies and Funds, and realized RMB convertibility under the current account ahead of schedule. Meanwhile, China has been active in promoting bilateral currency exchange between ASEAN and China, Japan and the Republic of Korea (10+3). At the end of 2004, China's foreign exchange reserves reached US$609.9 billion and its share in the International Monetary Fund has risen from 11th to 8th place. The variety of financial businesses has been increasing steadily, and China has opened an array of new businesses to become integrated into the various aspects of modern international financial business, such as consumer credit, securities investment funds and insurance-linked investments.
The exact parameters of China's fiscal year is not entirely clear, as online sources indicate differing time frames. It is stated that the fiscal years follows the calendar year, beginning January 1 and ending December 31, while other Chinese companies have followed different standards. For example, Tianyin Pharmaceutical Inc. released its second quarter financial results ended December 31, 2013, in accordance with the July 1-to-June 30 fiscal year, while China HGS Real Estate Inc. ended its last fiscal year on September 30, 2013.
China's insurance industry started to recover in 1980, after a 20-year standstill. In 1981, the People's Insurance Company of China was transformed from a government department into a specialized company, with branches or sub-branches in every part of China. 1988 witnessed the founding of the Ping An Insurance (Group) Company of China and the China Pacific Insurance, both mainly active in the coastal areas. In 1996, the People's Insurance Company of China made a big step forward in transforming its administration and operational mode, in setting up a modern enterprise system, and integrating with the international market. The Insurance Law of 1985 and the founding of the China Insurance Regulatory Commission in 1988 provided the legal basis and specific rules for the operation of the insurance market. In 1980, China only had one insurance company; by 2004 there were 62, with a total revenue of premiums of 431.8 billion yuan, of which 100.4 billion were paid as compensation and payment.
- Central Financial Work Commission
- Ministry of Finance of the People's Republic of China
- Financial services in China
- Foreign exchange reserve of the People's Republic of China
- State Administration of Foreign Exchange
- China Investment Corporation, CITIC
- Panda bond
- Qualified Domestic Institutional Investor
- Hedge fund industry in China
- List of asset management companies of the People's Republic of China
- China Securities Journal
- History of banking in China
- Fengbo Zhang Analysis of Chinese Macroeconomy
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