Page 372 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
Commission, by the end of 2017, Chinese commercial bank to promote the country’s financial opening-up and
banks’ capital adequacy ratio averaged 13.65 percent, up the internationalization of the Chinese currency RMB,
0.37 percentage points since 2016 (Chen). which has been more frequently used around the world
after being included into the Special Drawing Right
China’s banking and insurance regulator announced basket of the International Monetary Fund (Xinhua,
in April 2018 that it would take a series of actions to China Greenlights).
accelerate construction of legal and supplementary
systems to further open the country’s banking and In August 2018, China’s banking regulator decided
insurance sectors. The China Banking and Insurance to cancel and revise certain regulations on foreign
Regulatory Commission said it will issue a notice on investment in the banking sector in an effort to
further widening market access for foreign banks, push forward financial opening up. China abolished
allowing qualified foreign banks in China to authorize management rules on overseas financial institutions’
their branches in the country to do renminbi business investment in domestic organs, applying the same
and derivatives trading business. It will also adjust the market entry and administrative approval policies for
rules on working capital for foreign bank branches by both Chinese and foreign investment, according to
aggregating the working capital of multiple branches of a statement from the China Banking and Insurance
a foreign bank in China. The regulator will revise several Regulatory Commission. The commission also canceled
rules to remove caps on foreign ownership in Chinese- restrictions on foreign holdings in Chinese banking
funded banks and asset management companies. It and asset management companies in three other
will set no cap on foreign ownership in financial asset documents. The new rules specified that when overseas
investment companies and wealth management institutions invest in Chinese commercial banks or rural
companies newly established by commercial banks, financial organs, supervision and management on such
and encourage various banking institutions to organs should not be changed. China will create a fair,
introduce professional overseas investors. China will open and transparent mechanism for foreign investment
launch policies to expand the business scope of foreign in the banking sector and keep the system stable and
institutions, such as abandoning the requirement consistent, according to the statement (Xinhua, China
on foreign banks to conduct business in the country Revises Regulations).
for at least one year before applying to the regulator
to conduct renminbi business. It will also lower the However, a moment of truth arrived for China’s vast
threshold for foreign bank branches to accept a fixed- banking industry in 2018 after a decade of exuberance.
term RMB retail deposit to 500,000 yuan (US$78,912) With the US Federal Reserve on track for further
(Jiang, China Will Take). monetary tightening and the US-China trade war
continuing, the yuan will face continued downward
China’s central bank in May 2018 that overseas pressure, said Yu Xuejun, the chairman of the supervisory
RMB clearing banks will be allowed to conduct more board for key state-owned financial institutions at the
business including interbank borrowing. The PBOC China Banking and Insurance Regulatory Commission.
will grant overseas RMB clearing banks permits for Yu predicted that the industry, which has US$38 trillion
interbank borrowing, cross-border account financing in assets, will see a surge in non-performing loans, but
and bond repurchases business under the current insisted the government cannot allow another round
policy framework, according to an official statement, of large-scale credit expansion as it is still trying to
which said the move would provide liquidity support address the problems generated by previous stimulus
to offshore RMB markets. RMB clearing banks in Hong efforts. “The previous large increase in bank credit
Kong and Macao will not be required to hold deposit already poses an overhanging risk [to the Chinese
reserves at the PBOC Shenzhen and Zhuhai branches. economy] and the external monetary environment
Given the policy loosening, the central bank asked the has obviously changed,” Yu cautioned. “The continued
RMB clearing banks to strengthen liquidity management interest rate hikes by the Federal Reserve have exerted
and make risk-responding plans. The PBOC also said depreciation pressure on currencies like the yuan and
it would ensure effective bilateral currency swaps to make it difficult for [the government to allow more]
facilitate trade and investment, and improve currency monetary expansion,” he added. Previous economic
exchanges to help foreign investment into China’s stock stimuli relied heavily on investment – in particular,
market. The move was another effort from the central infrastructure spending – driven by looser monetary
372
Commission, by the end of 2017, Chinese commercial bank to promote the country’s financial opening-up and
banks’ capital adequacy ratio averaged 13.65 percent, up the internationalization of the Chinese currency RMB,
0.37 percentage points since 2016 (Chen). which has been more frequently used around the world
after being included into the Special Drawing Right
China’s banking and insurance regulator announced basket of the International Monetary Fund (Xinhua,
in April 2018 that it would take a series of actions to China Greenlights).
accelerate construction of legal and supplementary
systems to further open the country’s banking and In August 2018, China’s banking regulator decided
insurance sectors. The China Banking and Insurance to cancel and revise certain regulations on foreign
Regulatory Commission said it will issue a notice on investment in the banking sector in an effort to
further widening market access for foreign banks, push forward financial opening up. China abolished
allowing qualified foreign banks in China to authorize management rules on overseas financial institutions’
their branches in the country to do renminbi business investment in domestic organs, applying the same
and derivatives trading business. It will also adjust the market entry and administrative approval policies for
rules on working capital for foreign bank branches by both Chinese and foreign investment, according to
aggregating the working capital of multiple branches of a statement from the China Banking and Insurance
a foreign bank in China. The regulator will revise several Regulatory Commission. The commission also canceled
rules to remove caps on foreign ownership in Chinese- restrictions on foreign holdings in Chinese banking
funded banks and asset management companies. It and asset management companies in three other
will set no cap on foreign ownership in financial asset documents. The new rules specified that when overseas
investment companies and wealth management institutions invest in Chinese commercial banks or rural
companies newly established by commercial banks, financial organs, supervision and management on such
and encourage various banking institutions to organs should not be changed. China will create a fair,
introduce professional overseas investors. China will open and transparent mechanism for foreign investment
launch policies to expand the business scope of foreign in the banking sector and keep the system stable and
institutions, such as abandoning the requirement consistent, according to the statement (Xinhua, China
on foreign banks to conduct business in the country Revises Regulations).
for at least one year before applying to the regulator
to conduct renminbi business. It will also lower the However, a moment of truth arrived for China’s vast
threshold for foreign bank branches to accept a fixed- banking industry in 2018 after a decade of exuberance.
term RMB retail deposit to 500,000 yuan (US$78,912) With the US Federal Reserve on track for further
(Jiang, China Will Take). monetary tightening and the US-China trade war
continuing, the yuan will face continued downward
China’s central bank in May 2018 that overseas pressure, said Yu Xuejun, the chairman of the supervisory
RMB clearing banks will be allowed to conduct more board for key state-owned financial institutions at the
business including interbank borrowing. The PBOC China Banking and Insurance Regulatory Commission.
will grant overseas RMB clearing banks permits for Yu predicted that the industry, which has US$38 trillion
interbank borrowing, cross-border account financing in assets, will see a surge in non-performing loans, but
and bond repurchases business under the current insisted the government cannot allow another round
policy framework, according to an official statement, of large-scale credit expansion as it is still trying to
which said the move would provide liquidity support address the problems generated by previous stimulus
to offshore RMB markets. RMB clearing banks in Hong efforts. “The previous large increase in bank credit
Kong and Macao will not be required to hold deposit already poses an overhanging risk [to the Chinese
reserves at the PBOC Shenzhen and Zhuhai branches. economy] and the external monetary environment
Given the policy loosening, the central bank asked the has obviously changed,” Yu cautioned. “The continued
RMB clearing banks to strengthen liquidity management interest rate hikes by the Federal Reserve have exerted
and make risk-responding plans. The PBOC also said depreciation pressure on currencies like the yuan and
it would ensure effective bilateral currency swaps to make it difficult for [the government to allow more]
facilitate trade and investment, and improve currency monetary expansion,” he added. Previous economic
exchanges to help foreign investment into China’s stock stimuli relied heavily on investment – in particular,
market. The move was another effort from the central infrastructure spending – driven by looser monetary
372
