Finance and Insurance Financial System
In the past few decades, the People's Bank of China has exercised the central bank's functions and powers, as well as handling industrial and
commercial credits and savings business. Therefore, it was neither the central bank in the true sense, nor a commercial entity conforming to the law of the market economy. But since the adoption
of reform and opening-up in 1979, 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. By the end of 2003, the balance of home and foreign currency savings deposits stood at 22,036.4 billion yuan and the balance of home and foreign currency
loans came to 16,977.1 billion yuan. Now China has basically formed a financial system under the regulation, control and supervision of the central bank, with the state banks as the mainstay,
featuring the separation of policy-related finance and commercial finance, and the cooperation of various financial institutions, and mutual complementarities in terms of functions.
In
1984, the People's Bank of China stopped handling credit and savings business, and began formally to exercise the central bank's 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 Construction Bank of China were transformed into
state-owned commercial banks; and three policy-related banks, i.e., the Agricultural Development Bank of China, the State Development Bank and the China Import and Export Bank, were founded. 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 gradually has been perfected; the commercial banks wholly owned by the state have been
transformed into modern financial enterprises handling currencies; over 120 share-holding medium-sized and small commercial banks have been set up or reorganized; and securities and insurance
financial institutions have been further standardized and developed. In April 2003, the China Banking Regulatory Commission was formally established. Since then, a financial regulatory system has
been formed in which China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission work in coordination, with each having its own clearly
defined responsibilities.
In January 2004, the State Council decided that the Bank of China and the Construction Bank of China would start the experiment of transforming into the
share-holding system. The main tasks are to establish a standardized corporation management structure and an inner 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 financing
enterprises.
The Renminbi and Foreign Exchange Control
 The Renminbi (RMB), China's legal currency, is issued and controlled solely by the People's Bank of China. The exchange rates of the Renminbi are
decided by the People's Bank of China and issued by the State Administration of Foreign Exchange. China operates foreign exchange in a unified way,
with the State Administration of Foreign Exchange exercising the functions and powers of exchange control.
In 1994, China reformed the foreign exchange
system, combined the Renminbi 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 the Renminbi's convertibility under the current account ahead of schedule. Meanwhile, China has been active in promoting the bilateral currency
exchange between the Association of Southeast Asian Nations, and China, Japan and the Republic of Korea (10+3). At the end of 2003, China's foreign exchange reserves reached US$403.3
billion. China's share in international currency and funds organizations has risen from the 11th to the 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 investments linked with insurance.
Electronic Banking
In 1994, China started the "Golden Card Project," enabling cards issued by banks to be used all over the country through a network. To date,
financial institutions in China have issued 569 million cards, and installed 53,000 ATM, and 310,000 POS. The founding of the China Association
of Banks has rapidly promoted the use of bankcards through the network. By the end of 2003, commercial banks wholly-owned by the state had
adopted inter-bankcards through a network in more than 300 cities, and the inter-region and inter-bankcards of different kinds of banks in more
than 100 cities. The introduction of the identification card of the China Association of Banks in more than 40 cities has created a full-scale inter-regional and inter-bank network.
Foreign-Funded Banks and Jointly Run Financial Institutions
In the past 20 years, China's financial institutions in the special economic zones, coastal open cities and inland central cities have approved a
range of foreign-funded and Chinese-foreign jointly-run financial institutions. In 2002, China opened up a number of cities where foreign-funded
banks were allowed to handle Renminbi business, and it will continue the practice in the coming few years. In five years, there will be no regional
limitation on foreign-funded banks' handling Renminbi business in China. By the end of 2003, the total assets of foreign-funded operating financial
institutions in China reached over US$47 billion; foreign-funded banks were allowed to handle Renminbi business in 13 areas, and altogether 62
foreign-funded banks of 19 countries and regions set up 191 business institutions in China, among which 84 were approved to handle Renminbi
business. There were 211 branches of foreign banks in China.
Foreign-funded banks have expanded their China-related business scope. In November 2003, the China Banking Regulatory Commission started
implementing new policies such as allowing foreign-funded banks to provide Renminbi services to all kinds of Chinese enterprises in areas with
open Renminbi business (before this, foreign-funded banks could only provide Renminbi services to foreign-funded enterprises, foreigners and
personnel from Hong Kong, Macao and Taiwan in cities with open Renminbi 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 commercial banks in China have set up branches in foreign countries, and started an international credit business. The Bank of
China ranks the first in the number and scale of overseas outlets. In 1980, China resumed its 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, China formally became a member of the Asian Development Bank.
Stock Market
In 1990 and 1991, China set up securities exchanges in Shanghai and Shenzhen. In the past decade, the Chinese stock market has grown to
complete a journey that took many countries a hundred years or more to cover. Today, China's stock market has nearly 4,245.8 billion yuan in capital, 1,287 listed companies and 70.25 million
investors.
The Chinese stock market has promoted the reform of state-owned enterprises 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 the change of their systems. The change also has stimulated
medium-sized and small state-owned enterprises to adopt the share-holding system, thus solving the most important problem Ñ the system problem Ñ
during the transition from a planned economy to a market economy. As for ordinary citizens, the stock market has joined bank deposit accounts to become one of the most important channels for
investment. The methods of trade in stocks 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 2003, China issued 97 kinds of A share, and 24 rights issues, collecting a total of 82 billion yuan; and 24
kinds of B and H shares, collecting a total of 53.7 billion yuan.
Insurance
The insurance industry in China has come a long way since 1980 when China had only one insurance company. Today China has 54 insurance
companies, 170 insurance intermediate companies, and over 70,000 insurance agencies. Also, 37 foreign-funded insurance agencies have been
approved to do business in China, and 112 foreign-funded insurance companies from 19 countries and regions have set up 199 representative
offices in 14 cities of China, ready to enter the Chinese insurance market.
In 1981, the People's Insurance Company of China — the first company after the end of 20-year suspension of the industry — was transformed
from a government department into a specialized company, with branches in all the provinces, autonomous regions and municipalities and
sub-branches in all the counties. The year 1988 witnessed the founding of the Ping An Insurance (Group) Company of China and the Pacific
Insurance Company, which were mainly active in the coastal areas. In 1996, the People's Insurance Company of China made a big step forward in
transforming its administration system and operational mode, in setting up a modern enterprise system, and in integrating with the international
market. The promulgation of the Insurance Law in 1985 and the founding of the China Insurance Regulatory Commission in 1988 have provided
the legal basis and specific rules for the operation of the insurance market.
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