CHINA (PRC FIRMS): An Introduction to Banking & Finance

The Chinese Market 

As the first country to be hit by the outbreak of COVID-19, China shut down most of its economy in order to contain the spread of the virus in the first quarter of 2020, which has had a considerable impact on the business activities of most Chinese enterprises. As a result, in the first two months of 2020, consumption and investment dropped by more than 20%, and exports fell by nearly 20%. After the outbreak of COVID-19, 90 policy measures in eight categories were introduced by the state with the aim of cutting taxes and helping enterprises stabilise employment so as to assist with the resumption of work and production, and as a result China’s economy started to rebound in the second quarter of 2020. In the first half of 2020, China’s GDP grew by 1.6% year on year, the consumer price index (CPI) rose by 3.8%, and the producer price index (PPI) fell by 1.9% year on year. The general trend of China’s economy towards stable long-term growth with robust momentum remains unchanged.

Overview of the Banking and Finance Sector for 2020

In accordance with the requirements of the State Council, Chinese financial regulators, while carrying out COVID-19 prevention and control, continued to follow the general principle of pursuing progress while ensuring stability, concentrating on the stability of employment, the financial sector, foreign trade, and foreign and domestic investment. They also worked to secure jobs, basic living needs, the operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level government.

China amended its Securities Law in 2019, which came into effect in March 2020. The significant changes to the Securities Law include more detailed rules on information disclosure and protection of investors, a registration-based initial public offering system and tougher punishment for market violations. The amended Securities Law is regarded as a milestone in China’s capital market reforms and is expected to bring profound changes to the market ecology.

The People’s Bank of China (PBOC) continued prudent monetary policy, and improved fiscal, monetary and employment policy coordination and transmission in a bid to offset COVID-19’s impact on economic growth. The PBOC is also pushing ahead with the conversion of outstanding loans from a floating rate to a loan prime rate (LPR).

In September 2020, the State Council promulgated the Decision on Implementation of Market Access Control for Financial Holding Companies, and the PBOC subsequently issued the Tentative Measures for Supervision and Administration of Financial Holding Companies, both of which came into effect on 1st November 2020. These two regulations provide rules on a wide range of issues concerning market access of financial holding companies, including registered capital, shareholder qualifications, actual controllers, capital replenishment and risk management, bringing stricter supervision of financial holding companies in China. With that context and by supervising controlling shareholders of various types of financial institutions, such as banks, trust companies and insurance companies which are all regulated by the China Banking and Insurance Regulatory Committee (CBIRC), as well as securities companies which are regulated by the China Securities Regulatory Committee (CSRC), the PBOC has in turn become a cross-industry supervisor in the financial sector for the first time. The release of these new rules on supervising financial holding companies aims at deepening financial reforms, guarding against “cross-infection” of risks and better serving the real economy.

The CBIRC continues to maintain stringency in regulation. It has successively promulgated a series of regulatory documents, including the Rules of the CBIRC for Administrative Penalties and the Notice on Review of the Crackdown on Abnormalities in the Banking and Insurance Sectors. These documents raised the requirements for commercial banks in terms of compliance and internal management.

Guided by various policies, the Chinese financial sector saw positive changes occurring in its structural adjustment, as the size of currency, credit and social financing expanded. Chinese financial institutions also need to pay close attention to the frequent, and sometimes drastic, changes in financial regulation and government policy so as to adjust their business plans and products accordingly.