Banking System of China Essay

The Chinese tilling scheme is said to be undergoing some tremendous change in the shake up of the emergence of chinaw be as a major player in the global economy. This is so after(prenominal) several years of bring up self- go away and communism that was so prevalent in the democracy. The re ca-cas in the Chinese vernacularing remains commenced in the 1980s to date. The structure of the Chinese banking dust initially was large with the Peoples Bank of mainland chinaw ar being the only bank awarded to do banking business in the country as its Central Bank. exclusively this changed in the early 1980s when the Chinese political sympathies allowed some state own banks that were additionalized to start doing banking businesses and taking deposits. The banks licenced included verdant Bank of chinaware, Bank of chinaware, china Construction Bank and the Industrial and property qualification(prenominal) Bank of mainland china. This were the pi one and only(a)er spec ialized banks in china and in 1994, in that location was the establishment of naked banks whose purpose was policy specific equal the China nurture Bank, Export Import Bank of China and the China Development Bank CITATION Cla14 l 1033 (Claessens & Kodres, 2014). These banks scram a varying ownership degree by the normal that was done through the initial public offers but despite this, the majority sh areholder of these banks is still the Chinese government.several(prenominal) joint stock commercial banks and city c commercial banks baffle been licensed to ope straddle in China. The government of China has in addition licensed banks that are dedicated to develop the unsophisticated centers of China. Foreign banks have overly been allowed to operate in China.As of 2010, the total of the assets of the Chinese banking schema were 14 trillion dollars. The four specialized banks in China at that clock control take 48 percentage of these assets. The main regulatory body th at controls the banking system is the CBRC (China Banking regulatory Commission) that is charged with the responsibility of making rules and regulation of China banks CITATION Loo13 l 1033 (Looney, 2013). The CBRC is in charge of oversight and collects banking statistics to be used in the work out of approval of bank intricacy. It as well as goes a long way in solving the potential solvency and liquidity exhausts that might trouble banks. This Peoples Bank of China trance acting as Chinas Central bank has quite a an authority over the Chinese banking system. This includes the representative procedure played by the central bank of representation on knowlight-emitting diodege domain(prenominal) monetary forums and maintenance of monetary policy. Its early(a) divisions are the diminution of risk and promotion of pecuniary constancy of the system. The PBC is also responsible loaning regulation and the exchange of foreign currency amongst banks. It supervises settlement and allowance system in the country.The Chinese banking system does non consist of a deposit insurance where the depositors are protected from the loss of their bullion in case the banks get wound up. However re chassiss are underway to break that Chinese depositors are adapted to get insured for their deposits. In the opening of 2009, the Chinese government encouraged a large quote prosper in fix to offset the possible effects of the global pecuniary crisis. The larger area of this credit was used to finance foot and verbalism of real landed body politic which helped China to grow by forty vanadium percent in the midst of 2008 and 2013. At the same time, the outside(a) Monetary memory boards credit reports increase to 200 percent with much of it orgasm from bonds, loans and non-bank financing equivalent to 13 trillion dollars. Out of the 200 percent increase, non-bank financing accounted for two treys of the total CITATION Loo13 l 1033 (Looney, 2013). This mea nt that the flow of credit was non from regulated Chinese banks but from Chinese monetary institutions. The Chinese fag end banking system which has evolved over this period comprises of several layers which include jacket crown markets, non-banking financial institutions and the informal orbit.Review of LiteratureGlobalization is a multilateral border and deals with all the social, political and stinting issues in the developed and maturation existence. The world has seen many changes in the form of innovation, technological advancements and frugalal prosperity. single of the major shifts in the current era has been the creation of a world with no boundary. This has resulted into integration of technology and modernization of production and working methods. This newspaper publisher presents an in depth analysis on determining who have benefited from globalisation in China.The term globalisation has been a concept which has integrated in the world of current times. Globalization pertains to the maturement kins of concourse, culture, and economic activity on the global aim. The term is a lot utilized to refer to the perspective of economic globalisation it is the production and distribution of the services and goods on the global chopine and takes place with the help of the reduced obstacles of international distribute. These trade barriers include the exportation fees, tariffs, and import quotas, and also comprise of the free movement of gifting and jacket crown in the entire world. There are many ways countries that have benefited from globalisation in China CITATION Cla14 l 1033 (Claessens & Kodres, 2014). The impacts of trade brought by globalization could be seen by the diffusion of the art of glass making in China from Western. Religious ideology spread quickly in all directions through globalization. Mer washstandtilism for instance spread from the West to the einsteinium through globalization. The easy flow of ideas, art and culture resulted in economic, cultural and social vibrancy that was unmatched anywhere else in the world.Globalization has do Chinas economy the fastest exploitation economy with an mean(a) of 9 percent of developing in the last three decades. China has the largest rule book of goods imported and exported throughout the global market. Provinces at the coasts of China are to a greater extent industrialized and developed than those in the hinterland. It is for this reason that China has a substantial influence on the world economy because of the large volume of trade. The virtually valu adequate to(p) sector of Chinas economy is persistence and agriculture CITATION Moo99 l 1033 (Moore, 1999). The Agricultural output has been adversely bear on by erratic and sporadic weather of eastern United States Asia. The industrial sector in China has advanced more than the agricultural sector in China because of incomes, technology and labor productivity. The differences in the two sec tors of the economy are the reason for the social, economic and cultural disparity betwixt the urban and rural areas. China is the leading producer of mineral and industrial products like blacken and oil. According to statistics, China has achieved a growth level of 10.9%, which is quite a massive growth. With this rapid growth, people are now quite able to achieve graduate(prenominal)er nourishment upriseards which force out be observed in China where people can now be more hedonic in the goods they buy over the inferior ones CITATION Loo13 l 1033 (Looney, 2013).The government of China can now try timely and more effective services for everyones wellbeing. This is as a result of more people being able to pay their taxes as there are more employment opportunities. The availability of more revenue has enablight-emitting diode them to improve on the health check healthcare facilities and education. This not only has private benefit, but a intelligent population can be more p roductive due to the change magnitude life expectancy.With increasing globalization, Western Europe established favorable for trade and entrepreneurship through its educated workforce working in China. The development of infrastructural linkages in China favors trading in the region. This process has enhanced the rate of international trade of different services and goods. The production processes have been broken discomfit into various stages separated by the geographical boundaries and is conducted on large scale. Moreover, an grand expansion in the manufacturing exports has occurred from many underdeveloped countries. All these factors have created new opportunities and possibilities for the developing regions of the world. For instance, during 1900s, the japan and China experienced an increasing market constituent while the rest of the world witnessed the export destiny to be decreasing. Chinas globalization has also enhanced the participation of the developing world in FD I expansion. Due to the boosting of financial expansion in the industrial world, the developing nations have also obtained a platform to give their contributions in the financial world and enjoy the improvements of modern concepts CITATION Cla14 l 1033 (Claessens & Kodres, 2014).Globalization in China has encouraged increased flight of capital and ideas to other countries like Korea and Japan which have increased their inventiveness and expertise through the hiring of hot and innovative human resources from the developed nations. Moreover, they are able to avail the opportunities of investing in the developed regions of the world as well as attracting newer investments from other parts of the world CITATION Yen14 l 1033 (Yen, Lai, & Wang, 2014). Chinas globalization has in turn influenced the neighboring countries. India for instance has picked a few lessons from China and has ad pick outed a more open economy in the process. This has in the process transformed the nation as rega rds to development and creation of opportunities in the global scale for most multi-national companies. Globalization in China has resulted in an increased level of trade of China with other countries that are in different parts of the globe. Its recent growth has led to the revival of Japans economy and in the process saving them from recession thence averting a serious global downturn.With the bulky population figures in China, it has provided markets for American companies and their products. This has led to the flow of income from the U. S to China. The exported cheap products that are produced in the US has resulted in the increase of job opportunities hence an improvement of the living standards of the Americans and other countries nationals who are in active trade with China. With globalization China has been able to export some of its products to markets like the U.S thus managing to keep the level of flash and sideline range down in the process prolonging the economic boom in America CITATION Cla14 l 1033 (Claessens & Kodres, 2014).The success of globalization in China has led to decreased cases of wars and action in the globe. China is often a quiet participant in global conflict and its lack of interest in conflict has been beneficial to the global stage. With globalization it has managed to steer away from instances of tug of wars with the other global super powers. It does not helper insurgencies in conflict prone areas like the Middle East Asia and Latin America unlike other superpowers. It has by all federal agency through globalization supported the global financial institutions like the IMF in assisting the poor CITATION Moo99 l 1033 (Moore, 1999). As a result of this, third world countries have benefited the most from China s generosity as regards to support and sponsoring of development projects in their countries. In recent time China has been an active participant in the African scene f infrastructure with most of the projects in these countries being sponsored and conducted by China. This in essence shows Africa as the direct benefactor of globalization in China. China has been able to provide loans to these countries and in the process has strengthened ties with these nations. The concept of globalization has also proven to be a friend to the developing world by providing it the chances to stand in the line of competitors and thus, aim on attaining efficiency and competitive advantageMethodologyThe non-banking financial institutions constitute the larger part and they are study to regulatory oversight. The oversight involves various degrees that include direct loans for surfeit monetary resource from companies to trade credit or other borrowers, riches management products and assertion companies, pawn shops, micro credit providers, over 3000 private and equity providers part funded by private investors, consumer credit institutions, and financial guarantors to finance companies. The capital markets al low institutional investors and insurance companies to by debt and equity securities. The informal sector poses as a major risk for the Chinese economy because it involves direct change amid secretive and individual lending which is often conducted by unlawful loan sharks like back lane bankers and unrestrained capitalists who offer loans at high interests to small business enterprises. What drives this tremendous growth of the Chinese prat banking system is the regulation and structure of the countrys financial system. Chinas credit markets is dominated by four major banks that are controlled by the state and focus on lending to government associated firms , enterprises owned by the state and projects with official sanctions. This makes it quite laborious for other businesses to collide with access to bank credit which triggers darkness banking to fill this gap. This exemplifies a fashionable saying in Chinese culture which asserts that countermeasures come from below while policies come from above. There is immense risk that is associated Chinas shadow banking system which questions the longevity of the Chinese financial welfare. Although it may be difficult to ascertain the necessitate size of the Chinese shadow banking system, it is evidently growing rapidly and accounts for approximately 70 to 100 percent of the country gross domestic product CITATION Yen14 l 1033 (Yen, Lai, & Wang, 2014).A major problem is that most of the financial guarantors and trust companies of the Chinese shadow banking system often lack decorous capital. This forces them into an average leverage that is twenty times their worth given that most of the investments are of high nature. More so, the detail as to what exactly the investor will use the gold for is not clear. There is ambiguity regarding how to enforce hostage interests and due diligence by the investment enterprise or sponsor and the rights if the investor and borrower. The controls and oversight of the shado w banking system are weak since it operates with regulations that are limited. principal(prenominal) Issues/ FindingsThe share of lending by Chinese banks has now decreased from ninety percent over the past ten year to fifty percent showing how much the Chinese economy now relies on the shadow banking system as a vital financial source. This has mostly modify the local governments, small and medium sized enterprises and property companies. This interconnection surrounded by conventional banking systems and the shadow banking system lead to the creation of moral hazards and superfluous risk based on regulatory reasons CITATION Loo13 l 1033 (Looney, 2013). The banks often use the shadow banking system when shifting loan assets from their window financial statements and balance sheets for investors and regulators. For lesson, when Chinese banks are not able to lend silver at high interests to companies, they use Wealth focus Products and Trust Companies. They also create products of investment for investors looking for higher returns thereby acting as an intermediate between borrowers and savers Chinese banks has thus used shadow banking investment products like Security Brokers and Trust Companies to maintain the earnings and market share through the commissions and fees from the products. Currently, there has been an increase on the number of Wealth Management Products issued by Chinese banks has increased from roughly 100 billion dollars to 3 trillion dollars CITATION Kuh12 l 1033 (Kuhn & Yang, 2012).Shadow banking has caused uneven credit part of many borrowers in the market. This is because of the variability in collateral used to cook loans. Although most of the wealth management products are invested as bond markets, interbank deposits and money markets whose large proportion is secured through real estate. The problem with real estate is that the investors are highly vulnerable to losses because property values veer every now and then. This expos es them to high negative risk. There are also other risky forms of collateral in shadow banking which include invaluable commodities and industry machinery and other exotic forms like graveyards that also expose businesses to risk. close importantly is the fact that the collaterals pledged may not even be in existence CITATION Cla14 l 1033 (Claessens & Kodres, 2014). A good example is that of Wealth Management Product the Golden Elephant Number 38 which was secured by a deserted housing estate located in rice filed within the Jiangxi Province of China. This Wealth Management Product offered 7.2 percent to its investors on an annual basis. The collaterals used also entail substantial mismatches whereby long term assets are financed by short term funds that do not generate any income. This poses a liquidity crisis for the financial system and the conduit vehicles which scene constant periodic payments and other refinance requirements. This is evidenced by the huge 660 billion dolla rs worth of trust products that have matured as of 2014.The linkages between bank and shadow banking system in China are quite complex in nature. There are different transactions between the different shadow banking institutions. China growing precaution over the debt increase is complicated by the fact that there has been an increase in the rate of borrowing by most of its local government and the important role the shadow banking system plays in this economy. This is quite undermines the Chinese entrepreneurial tactile property and highlights the huge problems in Chinas system of finance. The relaxation measures interpreted by the central government in the wake of 2007/2008 financial crisis led to increased government expenditure in an endeavor to increase economic activity.The legal limitation is that the local governments in China are not allowed to ask for any form of funding or rather borrowing. This was after the creation of Urban Development Investment Companies (UDIC) th at was allowed to ask for any form of funding the local government need. Ideally, UDICs are allowed to ask for funding from banks but the recent action by banks to reduce on loans led them to borrow from the shadow banking system. This has thus resulted in the local banks being go away in the dark as there are disputes on the exact figure of borrowings made despite the growing level of scrutiny revolving the issue CITATION Loo13 l 1033 (Looney, 2013).There has been an increased rate of borrowing, misappropriation of funds and servicing of debts due to prices of property increasing in China. The growing concern by the lenders is more likely to reduce the availability of credit and as a result leading to a restrained cash flow. It can be said that the rise of the shadow banking has emerged from the structured financial system that is regulated. The limited access to funds and credit in bank has led to the emergence of shadow banking as the alternative solution to access credit. The r egulation by the government in terms of deposits and interest rates has contributed majorly to the growth of shadow banking. The loss of purchasing power by consumers has led them to opt for the high interest rates offered by shadow banks CITATION Cla14 l 1033 (Claessens & Kodres, 2014).The Chinese central government has been on the offence through curtailing of expansion of credit through making reduction in loan quotas thus to a large extend limiting lending to certain sectors in the long run encouraging the growth of shadow banking. The shadow banking system is multi-faceted where there is lending in the informal sector say between individuals and underground lending through shylocks who offer high rates of interest on loans to small businesses. This can be seen as some form of harassment to the small businesses where they incur the high costs of interest rates charged to them by this shadow banking system.The problems by this shadow banking system are aggravated by the fact that this shadow banking system in China is made up of non-banking financial institutions like leasing companies, finance companies and guarantors that are so-called to be regulated. The dominating products in the non-banking institution sector are wealth management products. These trust companies thrive in financing riskier transactions and borrowers who banks cannot do business with because of the strict regulations that come with them. These companies raise money from investors who then invest in securities and loans. The attractions of such investments are the high returns in comparison to bank deposits. The financing of local government projects of infrastructure come from trust funds because of the reluctance of the Central bank to limit the local government financing.A common feature of Chinas shadow banking is the working relationship they have with banks. The banks act as an agent in loan from one financial institution to another. Short term government debts interest is admini stered by the individual Central bank of that particular country. This is so because the sole role of the Central government is the maintenance of economic growth and price stability CITATION Yen14 l 1033 (Yen, Lai, & Wang, 2014). With lower interest rates then there is economic growth this is because of the affordability of credit as the people are able to service their loans and debts at low costs. From Statistics of the Chinese Central Bank, there has been a steady decline and rise in the interest rate in China for the last decade. This could be attributed to the public outcry in the country calling for effective and efficient monetary policy measures by their respective departments of finance. These measures have thus maintained the interest rates to a transmit minimum thus enabling the stable economic growth in China.The GDP growth rate figures are an indication of the wealth produced per capita in an economy. This then determines the levels of foreign direct investment that are attracted to an economy. A high GDP and growth rate like that of China shows a growing economy thus a high attraction rate for investors in the country CITATION Loo13 l 1033 (Looney, 2013). The high inflation rate in China erodes the purchasing power of the consumers. The inflation rate of China serves as an economic indicator of the economic direction of the country except for special global cases like Japan that despite low and negative inflation rates show no growth rate.ConclusionFrom this analysis therefore, it is clear that the economic policies and issues of the Chinese economy is determined by various economic variables provided by the Central Bank of China which plays a vital role to look into the full realization of the economic vision. The central banks monetary role and the governments fiscal policy role determine the economic development. With a proper and effective economic policies then the economic development agendas can be easily arrived atCITATION nte06 l 103 3 (International Monetary Fund, 2006).Shadow banking has grown in China and it is now rivaling conventional banking systems and this has made the country a central point regarding macroeconomic attention. There is a lot of speculation as to whether or not Chinas economy will tedious down and eventually cause critical financial upshot as a result of shadow banking CITATION Cla14 l 1033 (Claessens & Kodres, 2014). Consequently, this has become a serious issue that has gained global concern. In the beginning of 2009, the Chinese government encouraged a large credit boom in order to offset the possible effects of the global financial crisis. The larger part of this credit was used to finance infrastructure and construction of real estate which helped China to grow by forty five percent between 2008 and 2013.ReferencesClaessens, S., & Kodres, L. E. (2014). The Regulatory Responses to the Global Financial Crisis Some Uncomfortable Questions. in the buff York International Monetary Fund .International Monetary Fund. (2006). Progress in Chinas Banking Sector Reform Has Bank , Issues 2006-2071.Kuhn, R. L., & Yang, L. (2012). Chinas Banking and Financial Markets The privileged Research Report of the Chinese Government. New York John Wiley & Sons.Looney, R. E. (2013). Handbook of emergent Economies. New York Routledge.Moore, T. G. (1999). China and Globalization. Asian Perspective, 65-85.Yen, J., Lai, K. K., & Wang, M. (2014). Chinas Financial Markets Issues and Opportunities. New York Routledge.Source document