The China Venture

system formulation has been put on the top of the agenda. Between 1979 and 1993, a great
number of administrative rules and regulations were enacted in a wide range of fields. Some
of them dealt with the scope of the establishment of banking institutions or banking business
and others related to operational limitations and requirements. A general review of the law-
making process of this period will reveal two phenomena. The first relates to the
unprecedented number of rules and regulations enacted in China on the banking business in
sharp contrast with the previous period. This is directly linked to the fast development of the
banking industry in China. The other phenomenon relates to the lack of statutory laws on
banking despite so many important administrative rules being enacted.
A key to China’s financial development in the 1990s was the strengthening of the central
bank. The most notable step was the promulgation of the Central Bank Law in 1995, effective
as of March 19, 1995. With it, the role of the PBOC has become more focused. Art. 2 defines
the PBOC’s hierarchical position under the leadership of the State Council. In opting for this
solution, the activities of the central bank remain strongly linked to the requirements of state
policy and the country’s economic plans. The law defines the central bank’s two key
functions, namely the formulation and implementation of monetary policies on the one side
and the supervision and administration of the country’s financial institutions on the other
hand. The strengthening of the PBOC’s position must be seen as an attempt to monitor and
control the financial sector more effectively. 43
Another milestone development in China’s banking sector was the widely acknowledged
promulgation of the Commercial Banking Law, effective from July 1st, 1995. Together with
the Security Law, effective as of October 1, 1995, and the Negotiable Instruments Law,
effective as of January 1, 1996, these laws constitute an important basis and framework for
further financial reform. Moreover, they have to be seen as expression of ongoing efforts
aimed at the creation of a comprehensive legal system. 44
Comprising nine parts, the Commercial Banking Law was formulated to „protect the lawful
rights and interests of commercial banks, depositors and other customers, standardise the acts
of commercial banks, raise the quality of credit and assets and strengthen supervision and
administration of commercial banks“ (Article 1). The law does not only codify and elevate to
statutory level a number of issues that had previously been dealt with by administrative
43 Buchmann et al., 1996, pp. 3, Buxbaum/Gonzalez, 1998, p. 13 and Huang, 1996, pp. 17.
44 Buchmann et al., 1996, p. 1.
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