The China Venture
The China Venture The China Venture
of re-establishing macroeconomic stability under the pressure of increasing demand for capital. This period also included allowing new financial intermediaries to emerge. The period starting in 1993 contrasts with the previous one since an attempt at macroeconomic stabilisation was this time accompanied by an acceleration in the pace of financial-sector reform. The reforms include the adoption of a new law for the central bank and for commercial banks stemming from the former specialised banks, and the transfer of policy lending from the specialised banks to new policy banks. As a result of the different phases of reform, the system is now characterised by the co- existence of two components. The main one, made up of specialised banks, is still under the control of the government. The second component is made up of financial intermediaries, which either are subject to little control by the authorities or manage to side step existing regulations. 26 In general, the influence of China’s political system on the financial system is very high, like in any other mostly state-controlled business sector. The dominance of the state prevents the capital market from its important functions to mobilise and realise capital as well as allocating financial resources from investors to productive and efficient investments. The essential transparency of the capital market gets lost if the influence of the state is too high. On the other side, it is hardly possible to keep up a high level of stability without the interventions of the state, as it could be seen at the actual Asian crisis. China needs further reforms of its financial system, but as everywhere in the economy right now, the government has to face the dilemma between the necessarily deregulation and liberalisation on the one hand, and increasing instability and lack of control on the other hand. 27 The Chinese government has the ambition to promote Shanghai to become one of the top international financial centres competing with New York, Tokyo, London and Hong Kong etc. in the future. Pudong New Area is becoming the most intensive financial centre of Shanghai with banks and financial institutions, where also international banks can get the licence for RMB-business, and where the new building of Shanghai Securities Exchange (SSE) is situated. The financial reform extended the only investment possibility, the FDIs, to several forms of indirect investment opportunities, like credits and loans, stocks and 26 Girardin, 1997, pp. 22. 27 Further research-work and more into detail information about the financial system in China can be gained from Schröder, 1994; Schüller, 1995; Reif, 1995; Liu, 1996; Tam, 1995; Zahid, 1995a and Cao, 1995. 22
securities, trading, initial public offerings as well as usual emissions even on international capital markets etc. The other securities exchange is located in Shenzhen. But there is still a long way to go. For example, the full convertibility of RMB, which is a fundamental requirement for an efficient financial system, has been under discussion for a very long time. Another barrier to become an international financial centre is the very strong regulated financial market as can be seen in the following. In March 1998, the new premier Zhu Rongji, outlined an ambitious reform programme and promised five years of rapid change. The financial sector reform is one of the three main objectives which should be achieved by the end of the century. The financial system must be overhauled, improving the supervisory and regulatory functions of the PBOC and making state banks operate as independent, commercial entities. The investment system has to be changed from a system mainly controlled administratively to one run on market principles. The full convertibility of the Yuan depends on when the ability of the central bank to supervise and regulate the economy met international standards. 28 2.3.1.2 Financial institutions The financial institutions can be roughly divided into a bank and a non-bank sector. Figure 2 gives an overview of the broad structure of the financial system in China. The next figure shows a more precise structure of the banking system itself. Since 1983, the People’s Bank of China (PBOC) has been declared by the State Council as China’s central bank. It has established branches at provincial level, secondary branches at prefecture level and in medium-sized cities and sub-branches at county level. The decision- making body of the PBOC is its board of directors 29 . In 1993, it was transferred into a kind of Chinese Federal Reserve. At the National People’s Congress in March 1995, a very bold attempt was made to separate the PBOC from the executive arm of the government, thus removing it from the political influence of the Communist Party through the issuance of the central bank law. One of the special character of the Chinese banking system is the distinguishment between policy banks and commercial banks. Apart from the central bank, responsible for monetary policy and supervision of the financial system, the banking system in the mid-1990s is 28 See South China Morning Post, March 3,1998. 29 Hannan, 1995, p. 50. 23
- Page 1 and 2: The China Venture: Business Environ
- Page 3 and 4: Table of Contents List of Figures .
- Page 5 and 6: 3.2.3.2 Special Funds for Setting U
- Page 7 and 8: 3.4.1.1 National Culture ..........
- Page 9 and 10: List of Tables TABLE 2-1: THE AREAS
- Page 11 and 12: GBP Pounds Sterling GDB Guangdong D
- Page 13 and 14: 1. Introduction: The China Venture
- Page 15 and 16: After a short discussion with the p
- Page 17 and 18: co-operate with other firms, especi
- Page 19 and 20: The Chinese operating legal system
- Page 21 and 22: First of all, Britain’s predomina
- Page 23 and 24: democratic centralism, all governme
- Page 25 and 26: The courts are the state organs exe
- Page 27 and 28: more than three hundred intermedia
- Page 29 and 30: 2.2.8 Company Law China’s first n
- Page 31 and 32: Things seem have to become a lot cl
- Page 33: 2.3.1.1 Financial sector developmen
- Page 37 and 38: underdeveloped compared with market
- Page 39 and 40: established in January 1996 by 59 p
- Page 41 and 42: Chinese Banks Foreign Banks Financi
- Page 43 and 44: system formulation has been put on
- Page 45 and 46: The separation of production and co
- Page 47 and 48: swap centres (see also above). From
- Page 49 and 50: investors with little experience an
- Page 51 and 52: them, while a branch with a shortag
- Page 53 and 54: Loans, public offerings of shares,
- Page 55 and 56: is often to acquire foreign capital
- Page 57 and 58: 2.3.3.2 Debt financing As getting t
- Page 59 and 60: the approval of special authorities
- Page 61 and 62: control compared to national enterp
- Page 63 and 64: usiness in China and related issues
- Page 65 and 66: 3. Pre-Entry Strategic Consideratio
- Page 67 and 68: While the testing for the general r
- Page 69 and 70: of relevant contacts to suppliers a
- Page 71 and 72: partner companies with free servici
- Page 73 and 74: strengths which his own company lac
- Page 75 and 76: Central Committee of the Communist
- Page 77 and 78: environment for foreign investment
- Page 79 and 80: legal and regulatory environment of
- Page 81 and 82: 3.2.4.3 Legal Framework for Foreign
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securities, trading, initial public offerings as well as usual emissions even on international<br />
capital markets etc. <strong>The</strong> other securities exchange is located in Shenzhen. But there is still a<br />
long way to go. For example, the full convertibility of RMB, which is a fundamental<br />
requirement for an efficient financial system, has been under discussion for a very long time.<br />
Another barrier to become an international financial centre is the very strong regulated<br />
financial market as can be seen in the following.<br />
In March 1998, the new premier Zhu Rongji, outlined an ambitious reform programme and<br />
promised five years of rapid change. <strong>The</strong> financial sector reform is one of the three main<br />
objectives which should be achieved by the end of the century. <strong>The</strong> financial system must be<br />
overhauled, improving the supervisory and regulatory functions of the PBOC and making<br />
state banks operate as independent, commercial entities. <strong>The</strong> investment system has to be<br />
changed from a system mainly controlled administratively to one run on market principles.<br />
<strong>The</strong> full convertibility of the Yuan depends on when the ability of the central bank to<br />
supervise and regulate the economy met international standards. 28<br />
2.3.1.2 Financial institutions<br />
<strong>The</strong> financial institutions can be roughly divided into a bank and a non-bank sector. Figure 2<br />
gives an overview of the broad structure of the financial system in <strong>China</strong>. <strong>The</strong> next figure<br />
shows a more precise structure of the banking system itself.<br />
Since 1983, the People’s Bank of <strong>China</strong> (PBOC) has been declared by the State Council as<br />
<strong>China</strong>’s central bank. It has established branches at provincial level, secondary branches at<br />
prefecture level and in medium-sized cities and sub-branches at county level. <strong>The</strong> decision-<br />
making body of the PBOC is its board of directors 29 . In 1993, it was transferred into a kind of<br />
Chinese Federal Reserve. At the National People’s Congress in March 1995, a very bold<br />
attempt was made to separate the PBOC from the executive arm of the government, thus<br />
removing it from the political influence of the Communist Party through the issuance of the<br />
central bank law.<br />
One of the special character of the Chinese banking system is the distinguishment between<br />
policy banks and commercial banks. Apart from the central bank, responsible for monetary<br />
policy and supervision of the financial system, the banking system in the mid-1990s is<br />
28 See South <strong>China</strong> Morning Post, March 3,1998.<br />
29 Hannan, 1995, p. 50.<br />
23
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