Theory and Practice
New Horizons in International Business series
Chapter 3: China’s Banking Industry
INTRODUCTION Given the great market size and potential, MNBs have been constantly seeking market entry and development opportunities in the Chinese banking market. The purpose of this chapter is to give a background introduction to China’s banking industry, in particular the dynamics involved before and after China’s WTO accession. It aims to achieve a better understanding of the behaviors of foreign banks in the market entry. This chapter is set out as follows: the next section discusses the structure of China’s banking industry; Section 3 outlines the liberalization process of the Chinese banking market; Section 4 discusses the market entry of foreign banks before and after China’s accession into the WTO; the chapter ends with conclusions in Section 5. THE STRUCTURE OF CHINA’S BANKING INDUSTRY China’s banking sector is dominated by its domestic banking network which is made up of three state policy banks, ﬁve state owned commercial banks, 12 shareholding commercial banks, 127 city commercial banks, 599 city credit cooperatives, 27 036 rural credit cooperatives, 60 rural cooperative banks and 12 rural commercial banks with an aggregate branch network exceeding 190 000 locations throughout the country (China Financial Stability Report, PBOC, 2006) (Figure 3.1). All banks are governed by the PBOC, the central bank, which is responsible for setting China’s monetary policies. CBRC established in 2003 is responsible for the supervision of banking operation and services. The local currency is not freely exchangeable. The interest rates are tightly monitored and controlled by the PBOC. Since 1986 the PBOC has...
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