Section III: Finance
At present, China has basically formed a financial system regulated and supervised by the central banks, dominated by state banks, with policy finance and commercial finance functioning separately, with diversified financial institutions co-operating with each other and with the functions complementing each other. By the end of 2003, the total asset of all China’s financial institutions added up to over 40000 billion yuan.
On April 28, 2003, the Chinese Banking Supervision and Management Commission ( short for CBSMC ) came into being officially. The establishment of the CBSMC marked that China’s banking supervision and management work has entered into a new stage. The supervision and management system for financial division of labor has been set up, with definite division of labor and mutual coordinating between CBSMC, Securities Supervision Commission and Insurance Supervision Commission.
By the end of 2003, balance of broadened money supply was 21922.6 billion yuan, rising 18.5% as compared to the end of last year; while balance of money supply in a narrow sense amounted to 8411.9 billion yuan, rising 18.7%; balance of the RMB deposits and foreign exchange deposits in all financial institutions amounted to 22036.4 billion yuan, rising 20.2% as compared with the end of last year; balance of loans in RMB and in foreign currencies by all financial institutions reached 16977.1 billion yuan, rising 21.4% over the end of last year.
II. RMB and Foreign Exchange Rate System
Renminbi is the legal tender of China, issued and controlled by the People’s Bank of China in a unified way. Conversion rate of RMB is worked out by the People’s Bank of China and released by the State Administration of Foreign Exchange Control. China operates foreign exchanges in a unified way and the State Administration of Foreign Exchange Control exercises its functions and powers on foreign exchange control.
The China’s current exchange rate system came into being in 1994. Between 1994 and 1997, the exchange rate appreciated from 8.7 RMB yuan vs. 1 US dollar to 8.3 RMB yuan vs. 1 US dollar and the RMB conversion rate to US dollar appreciated by about 4.8%. Afterwards, change in RMB conversion rate began to shrink. Especially after the Asian financial crisis, under the appeal of the neighboring countries and international institutions, the fluctuation space of the RMB conversion rate was narrowed greatly. The fact that the Chinese economy has been developing continually, rapidly and healthily in consecutive years has proved that such arrangement of exchange rate fits in with the periods of the Chinese economic development, financial supervision and management level and the enterprises’ bearing capacity and is in line with the present-day system under China’s present national conditions. By the end of 2003, China’s foreign exchange reserve reached 403.251 billion US dollars, giving rise to an increase of 116.8 billion US dollars as compared to the end of last year. The RMB conversion rate remained stable and the annual average exchange rate was 1 US dollar to 8.277 RMB yuan, keeping unbiased with last year.
To sum up, the present Chinese RMB exchange rate system is “ a single and controlled floating rate system based on market supply and demand ”. Its functioning and the basis for its existence lie in two aspects: one is the bank system for the settlement and sales of the exchanges and added to this is the realization of convertibility of RMB under current account; the other is the establishment of the unified inter-bank foreign exchange market throughout the country, with the foreign exchange rates being decided by market supply and demand.
III. Banking Industry’s Opening to the Outside World
The opening up of China’s banking industry has undergone an evolutionary opening process of developing from cities in coastal special economic zones to central cities, then to all regions and from operating foreign currencies to opening up RMB business. Over more than 20 years since foreign financial institutions came to China, they have become an important integral part of the Chinese financial system. By the end of November of 2003, 62 foreign banks from 19 countries and regions have set up 191 operational institutions in China, of which 84 have been allowed to get involved in RMB business. In addition, upon approval, the foreign banks have set up 211 representative offices in China. The total amount of the assets of the foreign banks in China has reached over 47 billion US dollars, accounting for 1.4% of the total amount of the assets owned by the financial institutions in China’s banking industry. Balance of the loans by foreign banks has exceeded over 20 billion US dollars, of which balance of the foreign exchange loans has reached 16.4 billion US dollars, making up 13% of all foreign exchange loans by financial institutions in the banking industry.
Since its accession to WTO, China has eliminated all restrictions on foreign banks’ operation of foreign exchange business and regions where foreign banks can operate RMB and variety of customers are also expanding rapidly. In order to further push forward the opening up of the banking industry in a steady way, CBSMC has implemented a series of significant measures one after another since November of 2003, which include: first, allowing foreign banks to expand regions where they can operate RMB business to Jinan, Fuzhou, Chengdu and Chongqing, thus increasing number of cities where RMB business are opened up to 13. Second, allowing foreign banks satisfying legal conditions to offer RMB service to various kinds of Chinese enterprises in above-mentioned areas where RMB business are opened up. Before, foreign banks could only offer various kinds of RMB services to foreign enterprises, foreign people and Hong Kong, Macao and Taiwan compatriots in regions where RMB business were opened up. Thirdly, in order to further promote the opening up and strengthen the supervision and management, the CBSMC decided to reduce the highest amount of the funds operated by the branches of the foreign banks from 600 million yuan to 500 million yuan, the original 400 million yuan of the fifth level to 300 million yuan, and shrank the operational funds of the foreign banks with sole proprietorship and banks on joint venture basis registered in China from the original 6 levels to 3 levels and funds were respectively reduced to 100 million RMB yuan, 200 million RMB yuan and 300 million RMB yuan. Market accession procedures of all foreign banks will be further simplified. Fourthly, as an important aspect in deepening financial reform, China welcomes qualified overseas strategic investors to participate in the restructuring and transforming of the financial institutions in the Chinese banking industry according to the voluntary and commercial principle. Approved by the State Council, the CBSMC decided to increase the ratio of the individual foreign institutions participation in the stock of the Chinese financial institutions from the originally stipulated 15% to 20%. If the total amount of the foreign investment is lower than 25%, the nature of the Chinese domestic financial institutions with foreign investment and the all its business scope shall not change. Fifthly, in order to execute China抯 commitment to its accession to WTO and to standardize automobile consumption credit business, the CBSMC recently released and implemented《Automobile Finance Company Management Measures》 and《The Detailed Rules on Implementation》.
IV. Securities Industry
China has only two stock exchanges at present: the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Business includes the independently-operated purchase and sales, the purchase and sales on commission basis, subscription and marketing of the valuable securities. Valuable securities listed on the stock exchanges mainly include: (1) various kinds of bonds issued by the state; (2) various kinds of construction bonds issued by the provincial governments or local people抯 governments at the provincial level; (3) various kinds of bonds issued by financial institutions; (4) corporate bonds issued openly in various places of the country; stock and various kinds of beneficial equity vouchers. According to the statistics in 2003, now there are 1287 domestic listed companies ( A share and B share ) on China抯 stock market, 93 overseas listed companies ( H share ), with the stock release amounting to 30.41 billion shares and the fund-raising amount reaching 135.78 billion yuan in the same year.
China exercises centralized and unified supervision and management system. The Chinese Securities Supervision and Management Commission is the management authority for securities market.
At present, securities companies and trust and investment companies have all set up operational institutions in big and medium-sized cities in China, which are called securities trading offices, for people to buy and sell various kinds of listed securities.
V. Insurance Business
In 2003, practitioners in insurance sector amounted to nearly 200 thousand, the insurance premium income amounted to 388 billion yuan and repayments and payments amounted to 84.6 billion yuan.
At present, 34 foreign insurance institutions are allowed to do business in China and 112 foreign insurance companies from 19 countries and regions have set up 199 representative offices in 14 cities in China, waiting to get access to China’s insurance market.