The China Venture

established in January 1996 by 59 private companies. Minsheng is carving out a niche in
China’s growing private sector, a customer base long neglected by the larger state owned
banks. It may be China’s smallest national commercial bank, a minnow compared to the state-
owned giants of China’s banking industry, but its aspirations are big. 34
The most important domestic competitors are the four state-owned specialised banks, which
together have about 120’000 branches in China. The ICBC, for example, is the biggest of
China’s big four state banks in terms of assets and employees. ICBC still allocates 70% of its
loans to state firms. 35 The Bocom and the specialised banks are highly affected by the
government policy granting loans to SOEs among the state -owned banks. China’s state banks
are being undermined by the sheer scale of non-performing loans, although the conversion of
central bank loans into equity would improve capital adequacy ratios and could be the first
substantive step towards restructuring the sector. The increasing number of new banks pushed
the existing specialised banks to further reforms in transforming themselves into market-
oriented commercial banks, which try to be more flexible and customer focussed. Service at
Chinese banks is getting better, but is still very poor. Nevertheless, since all business in China
requires to be conducted in RMB, it’s wise to let financial transaction done by domestic
banks. The Shanghai government has directed local banks to favour loans to priority
infrastructure projects, and all fixed-asset loans by China’s banks have been under the control
of the central government since January 1994. This makes them not very reliable as a source
for operating credits for either foreign or Chinese firms.
Priority in the reforms, will be given to recapitalising the big four state-owned banks, while
some smaller banks will be allowed to fail. This became clear as the Hainan Development
Bank went bankrupt. Losses from its closure were covered by the authorities, but this may not
be the case once closures and bankruptcies gain pace.
Foreign Banks
The restrictive regulatory environment, most notably the ban on RMB business, has
discouraged and prohibited foreign banks from playing a prominent role in China. Foreign
banks have historically not been allowed to open RMB accounts for customers, but they have
been permitted to open foreign currency accounts for FIEs in Special Economic Zones. 36
Nevertheless, by the end of 1995, 120 branches and 469 representative offices of foreign
34 Business China, 1998, p. 12.
35 Business China, 1998, pp. 12.
27