The activity  of China’s banking system is based primarily on the People’s Bank of China (PBOC),the central bank with regulatory powers of monetary policy and on the China Banking Regulatory Commission(CBRC). The PBOC, founded in 1948, is the central bank and authority of financial stability. The CBRC was established in 2003, has as its main objective the reform of State Owned Bank (SOB) and monitoring of the banking system. Currently, the system is divided into two levels: the PBOC and other commercial banks. These are divided into four state commercial banks (the "Big Four"), in commercial banks in the form of joint-stock companies, in banks of national interest, in local banks and foreign banks. The Chinese banking system, however, is still characterized by the prevalence of public banks for gradualness with which the reforms were introduced.

Banking system evolution

After the birth of People's Republic of China (PRC) in 1949, China's socialist economic policy promotes the nationalization of banks thanks to the Ministry of Finance, the main controller of financial services and the management of the national capital. Until the eighties, the main activity of banking system is realized, therefore, only in granting necessary credit to public companies to enable programs of national planning. The inefficient allocation of savings accumulated by public banks is used to finance investments in areas and sectors with low productivity due to public companies which don’t pursue profit maximization strategies. The Chinese banking system focus on the PBOC which plays the role of the central bank and commercial bank with the task of supervision and control of the other smaller banks. These functions are carried out within an economic structure that relegates the banking business almost exclusively to service national planning. For nearly three decades, from the birth of the Peoples' Republic of China (PRC), the real economy is supported by only one bank: the PBOC.

In the eighties, however there has been a gradual increase in the importance of the role played by banks to  support private economic activity outside the planning. Occurs in fact a decrease of power State financing and a simultaneous increase in the households savings and deposits, thanks to rising incomes due to strong economic development. The bank becomes the main instrument to allocate resources that economic growth provides the Chinese economy. From those years banking intermediation becomes essential, especially in the industrial development of China. This new role of the banks, however, requires a reorganization of banking and credit system until then managed only by the PBOC.

In the eighties, therefore, we can see a first modification and diversification of Central Bank functions. With the start of the Deng Xiaoping economic reforms, in fact, the Government intention is to equip China's banking system less centralized. In this regard, in 1980 the PBOC is private by commercial functions and there is creation of "Big Four" to support companies in their internationalization through funding in strategic sectors.

- Bank of China (BOC) specializes in the field of foreign trade.
- China Construction Bank (CCB) in the field of infrastructure finance.
- Industrial and Commercial Bank of China (ICBC) in the industrial sector.
- Agricultural Bank of China (ABC) in the agricultural sector.

Originally, these state-owned banks are created as special credit institutions competent in their respective fields but during the years this specialization is reduced and today they compete on all credit activities. In addition, the "Big Four" are still used by the Government to support economic plans. With them, since the nineties, there is also the gradual increase in commercial non-state owned banks and other financial companies often traded and invested in by foreign investors, as shown in Tab. 1:

Total Assets of Banking Institutions.  Source: PBOC (2010).

These new financial entities, are characterized by a plurality of decision makers and don’t have the State as sole shareholder, so they limit the interference and distortion of policy in the granting of credit and reduce the assets  of the "Big Four".

Even today, the main distortion of the financial sector for financing enterprises derives from access to credit primarily through the four public commercial banks despite the growth of non-banking institutions and other financial entities.

In addition, in rural areas it’s evident the increased use of informal channels to finance private sector. The development of this phenomenon is caused by the scarcity of credit granted to private companies by the Agricultural Bank of China and other rural credit cooperatives under state supervision.

The difficulty of access to credit, the disproportionate investment  share and its low efficiency, are explained in an institutional system which is struggling to adapt to the needs of the market economy. There is, in fact, a resistance to support private companies, with the result of generating allocative inefficiency that prevents to finance the most competitive sectors, slowing the development of competition.

As for the real sphere of the economy, the reforms that have ensured the growth can boast a past thirty years, in the banking sector, the reform process has been much slower and more gradual. This gradual approach keeps alive distortions that limit the productivity growth, just as the particular favor that the banking system continues to reserve for public companies. In addition, the Chinese economy provides  the state owned banks, often entrusts the management of the banking system to staff and managers chosen more for political reasons than for technical skills.

Such distortions are still present despite the agreement made by China when it joined the World Trade Organization (WTO) in 2001. These commitments are aimed to open the banking system to foreign competition and to guarantee the highest international efficiency standards.  With China's entry into the WTO, in fact, apply structural reforms to the banking system to solve the problems of vulnerability of the state banks when the system would be open to international competition. This reorganization provides the increase of their assets through a massive input of funds, the authorization for banks to fund management, the supervision  strengthening through the establishment of the China Banking Regulatory Commission (CBRC) and finally the opening of the state-owned banks to foreign entities.

From the entrance of China into the WTO, the Chinese banking activity has been directed more towards the logic of performance and efficiency, rather than logical tied exclusively to the national planning. Despite this, however, the system continues to be characterized by factors of instability. For example, the activities of foreign banks are blocked by the limitations on acquisition of shares in local banks or by the establishment of branches in a regulatory framework still far from international standards. In the literature, however, is attributed to its lack, like a full opening of the sector to international competition, the merit of having allowed the country not to suffer too much the weight of the recent financial crises and contrary to increase their influence on world financial markets.


BAGELLA M. – BONAVIGLIA R. (2009) Il risveglio del Dragone. Moneta, banche e finanza in Cina, Venezia, Marsilio editori
BORTOLANI S. – SANTORUM A. (1984) Moneta e banca in Cina, Milano, Giuffrè
GOTTI TEDESCHI C. (2007) “Il settore bancario in Cina. La crescita del credito e la recente apertura agli investitori strategici stranieri”, Corriere Asia, Febbraio. (
MADDALONI D. (2008) Investimenti diretti in Cina. Politiche pubbliche e valutazioni economico-finanziarie, Milano, Franco Angeli
ROSSI G. (2011) Stato e società in Cina. Comitati di villaggio, organizzazioni governative, enti pubblici, Torino, Giappichelli editore
CHINA BANKING REGULATORY COMMISSION (2010) China Banking Regulatory Commission Annual Report, Beijing

Editor: Giovanni AVERSA