Time

Major Banking Sector Reforms in China since 1978

Before 1978

Mono-bank system (People’s Bank of China or PBC is the central bank and sole commercial bank).

Planned Economy (banking sector was strictly under government control).

First Stage 1979-1993

The banking system expanded and diversified, but still operated on a credit plan system.

Transferred PBC’s commercial operations to four specialized banks (the Big Four).

PBC is designated to be the central bank in 1983.

Allowed the four banks to compete for loans and deposits.

Interbank borrowing and lending networks were created.

Rural credit cooperatives, urban credit cooperatives, and other new financial institutions were created.

Established the deposit reserve system.

Second Stage

1994-2003

PBC started open market operations and abolished the credit plan system in 1998.

Three policy banks were established and have overseen policy lending since 1994.

Move direct monetary control to indirect control.

Required banks to improve their asset liability management since 1998.

270 billion yuan of special-purpose bonds were injected into the Big Four in 1998.

Set up 4 state-owned asset management companies in 1999-2000.

1394-billion-yuan nonperforming loans from the Big Four were transferred to the asset management companies.

Set a baseline of a floor for lending rates and a baseline of a ceiling for deposit rates in 2003.

Third Stage

2004-present

China started “share ownership reform” that consists of recapitalization, the disposal of non-performing loans, and the introduction of foreign strategic investors in 2003.

Banks gain more independence and policies are more market oriented.

The Big Four started their restructuring.

The financial service industry was fully opened to foreign sectors in 2006.

Classified the Bank of Communications as a state-owned commercial bank in 2007.

Eliminated the floor for lending rates in 2013.

Eliminated the ceiling for deposit rates in 2015.

Deposit insurance went into effect in 2015.

Introduced market-driven loan prime rate as the benchmark lending rate in 2019.