To what extent is the incorporation of state owned commercial banks improved the efficiency of the Chinese banking system - Essay Example

Download file to see previous pages Since China gets more structured with the globe, because of these measures banking system of China now has turn out to be high-ranking in the global financial markets, corroborated by the rapid development of economy of China. The banking system of China is viewed as successful during the situation of financial crisis in 2008. Now, 3 drifted banks of China namely Bank of China (BOC), Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) are the biggest banks in terms of market value following the financial crisis which ruined many European and American banks. During 1990, many experimental and theoretical studies have analysed the chances and challenges that banking sector of China face (Chapman & Marshall, 2012). An important study regarding the Chinese Banking industry in the broader perspective of agreement of China with World Trade Organization (WTO) and economic transformation is extremely important (Chapman & Marshall, 2012). Discussion In 1980s, various banks of Latin American countries face crises. Lots of nations carry out a many steps to restructuring their misfunctioned banking industry, including fiscal relaxation and strengthened dictatorial regimes. Mostly these transformations were productive in strengthening banking industry and avoiding banking crisis. Transparent and imprudent authoritarian and administrative models played a significant role in the successful states (Wang, 2009). In 1978, in Chinese banking system the process of reformation was began with the establishment of the BOC and CCB. During last 3 decades, different measures of restructuring have been beginning piecemeal in order to strengthen the competitiveness and effectiveness of the domestic banks in China, particularly the state-owned commercial banks. Even so, the steps that have been carried out don’t give the required results. In 2004, official figures shows that the ratio of non-performing loans in the Chinese big four state-owned commercial banks that remained at 2.5 trillion Yuan (equal to three trillion US dollars at recent rate of exchange), was fifteen percent of the entire bank loans (Wang, 2009). This official estimation is viewed as to be undervaluing due to the oblique system of rating system. The ineffective operational mechanism, distribution system, and personnel management system result in failure of several significant restructuring steps. Therefore Chinese banking system requires a complete shakeup. Size and Structure of the Chinese Banking System During the last decade, the banking sector of China is greater in size comparative to the economy of China and has expanded drastically. Entire assets of Chinese banking system (as well as assets that are present in the international subsidiaries and branches of Chinese banks) were approximately equal to two hundred and forty percent of GDP at the end of 2011 which increase from two hundred percent that were in early period of 2000, however, from GDP domestic credit is estimated to be equal to one hundred and forty five percent (Chapman & Marshall, 2012). This ratio of credit-to- GDP is high comparative to states in which the per capita income is at equal levels. Intermediated credits are much developed ...Download file to see next pagesRead More