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Insurance     Renminbi and Foreign Exchange Control     Bank Credit and financial Markets

 

Introduction : After the founding of the PRC, the People’s Bank of China exercised the functions and powers of the central bank, at the same time handling industrial and commercial loans and savings. Therefore, it was neither a real central bank nor a commercial bank in conformity with the laws of the market. Since 1978, China has carried out a series of major reforms in its banking system and invigorated the opening to the outside world, in the process allowing finance to develop steadily. In 1999, the total amount of RMB deposits of all the banking institutions had reached 10.9 trillion yuan, and the total amount of credits was 9.4 trillion yuan, 96 times and 53 times the figures for 1978, respectively. China has basically formed a new financial system regulated, controlled and supervised by the central bank, with national banks providing the main body, and policy management separated from commercial business. Many different kinds of banking organizations coexist, rationally coordinating the division of responsibility. The new banking system has played an active role in curbing inflation and promoting economic development. Since 1984, the People’s Bank of China no longer handles loans and savings, but formally acts as a central bank to exercise macro-control and supervision over the nation’s banking business, achieving remarkable success. In 1994, the Industrial and Commercil Bank of China, Bank of China, Agricultural Bank of China and Construction Bank of China were transformed into national commercial banks; meanwhile, three policy banks were established: the China Agricultural Development Bank, National Development Bank and China Import and Export Bank. The Commercial Banks Law, issued in 1995, not only provides the conditions for constructing a new commercial bank system and organization, but also offers legal ways for the national specialized banks to be transformed into commercial banks. Since 1996, a number of stock commercial banks have been set up, the number of financial institutions have increased rapidly, and banking businesses have become diversified, and banking services have become an indispensable part of society. After the eruption of the financial crisis in the capitalist countries of Asia in 1997, in order to prevent and eliminate financial risks, the People’s Bank of China established a management system in 1998 to conduct independent management and supervision over the banking, securities and insurance sectors, cancelled provincial-level branches and offices at or below the prefecture and city levels, and established nine trans-provincial (autonomous regional and municipal) branches.

Over the past 21 years, China has steadily broadened its finance sector. A group of foreign-capital and Sino-foreign joint-venture financial organizations have been established in the special economic zones and coastal open cities as well as in major inland cities, and the right to do RMB business has been given to some foreign-invested banks. The Chinese government has decided to enlarge the regions where foreign-invested banks may establish business operation organizations from the present 23 cities and Hainan Province to all major cities. By the end of 1999, a total of 177 commercial foreign financial organizations and 248 agencies of foreign banks had been set up in China. China’s commercial banks have also set up branches abroad to develop international credit business. Among them, the Bank of China has the most and biggest branches. In 1980, China resumed its membership of the World Bank, and returned to the International Monetary Fund. In 1984, it established business relations with the Bank for International Settlements. In 1985, China formally joined the African Development Bank, and in 1986 officially became a member of the Asian Development Bank.

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Insurance

In 1981, the People’s Insurance Company of China was transformed from an administrative institution into a specialized company. It then established an organizational structure extending from the head office and branch offices at the provincial or equivalent level down to sub-branch offices at the county level. In 1988, the Safety Insurance Company was established, with its business mainly in the coastal areas. Subsequently, the Pacific Insurance Company was set up, providing services all over the country. In 1996, the People’s Insurance Company of China made a big stride in the transfer of its administrative system and operation methods, establishing a modern enterprise system, and linking up with the international market. The issuing of the Insurance Law and the founding of the China Insurance Supervision and Control Committee provided a legal basis and operating procedures for the operations of the insurance market. In 1999, there were 29 insurance companies nationwide, of which four were state-owned ones, 10 were joint-stock ones, five were Sino-foreign joint-venture ones and 10 were branches of foreign insurance companies. Thus, a new insurance system with the state-owned insurance companies at its center, coexisting and competing with many other insurance companies, has begun to take shape. At the same time, exchanges and cooperation between the Chinese and international insurance markets have been strengthened. By the end of 1999, representative offices had been set up in China by over 100 insurance organizations from other countries and regions.

After the insurance industry in China resumed its activities, at first it only handled property insurance for enterprises. Now, many insurance companies handle more than 280 kinds of insurance coverage both at home and abroad, and the industry is gradually approaching the business range common in the international insurance industry. In 1999, the income of insurance businesses (solely foreign-funded organizations included) totaled 139.3 billion yuan, of which 52.1 billion yuan came from property insurance, 76.8 billion yuan from life insurance, and 10.4 billion yuan from health insurance and accidental injury insurance. The various indemnities totaled 51 billion yuan, of which 31.8 billion yuan was for property insurance and short-term personal insurance, and 19.2 billion yuan for life insurance.

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Renminbi and Foreign Exchange Control

China’s official currency, the Renminbi (RMB), is issued and managed by the People’s Bank of China. The currency is denominated in yuan (one yuan equals 10 jiao, and one jiao equals 10 fen). The exchange rate of RMB is formulated by the People’s Bank of China, and issued by the General Administration of Exchange Control. China exercises centralized management over foreign exchange, this function being performed by the General Administration of Exchange Control.

In 1994, reforms were carried out in the administration of foreign currencies, adopting a combination of exchange rates (from the simultaneous existence of several exchange rates to a single market exchange rate) and a unified settlement and sale of foreign exchange, and a unified inter-bank foreign exchange market was established. This had an important influence upon China’s economic development and reform and opening to the outside world. Since 1996, foreign currency business of foreign-invested enterprises has been directed into the banking system of settlement and sale. On December 1, 1996, China formally accepted Article 8 of the Agreement on International Currencies and Funds, realizing the convertibility of the RMB under the current account ahead of schedule. This was a major breakthrough in reforming the country’s foreign exchange control system. Facing the impact of the Asian financial crisis since 1997, the Chinese government has declared that it will maintain the exchange rate of the RMB, stating that the RMB will not be devaluated, winning the appreciation of the international community. In 1999, China’s foreign exchange reserves totaled US$ 154.7 billion, 99 times that of 1978.

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Bank Credit and financial Markets

China’s financial market has begun to take shape, and various types of financial businesses have been developed, including stocks, bonds and commercial bills. The capital loan and negotiable securities markets were gradually established after 1985. In 1988, transfer markets for treasury bonds were set up in China’s largeand medium-sized cities, and stock exchanges were established in Shanghai and Shenzhen in 1990 and 1991, respectively. In 1999, the Shanghai and Shenzhen stock exchanges issued 98 “A” shares and 117 supporting shares, raising 87.7 billion yuan; the number of listed companies increased to 976; the total raised foreign capital reached US$ 610 million by issuing “B” and “H” shares. China issued 1.5 billion yuan of “A” shares that can be converted into bonds. In 1999, 94.1 billion yuan was raised through issuing and selling stocks. The business volume of stock exchanges in 1999 exceeded 5.000 billion yuan; and a total of 401.5 billion yuan-worth of government bonds were issued, and 191.1 billion yuan-worth of government bonds were cashed. This capital has effectively improved the financial position of the listed companies and increased the sources of funds for the technological transformation of the state enterprises.

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  Information provided by China National Tourism Administration.

 

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