financial system: Now and in 20 years
the past few years I have been spending nearly half of my time
expanding Hang Seng Bank's business in the Chinese mainland market,
and through that process I have accumulated some experience.
modernized banking structure is now taking shape in China, though
at this stage the industry is still dominated by State-owned banks.
At present, the big-four State-owned commercial banks have a market
share of about 60 per cent in terms of deposits and loans. Ten
years ago their share was 90 per cent. A new generation of commercial
banks has been established, some of which are funded privately
and are listed on the mainland bourses.
there are about 70 foreign banks with over 150 branches in China
providing domestic and foreign currency business. Compare it with
1993 when the figures were 27 and 58 respectively.
the capital market, as of 2003, the two stock exchanges had 1,285
listed companies with a total capitalization of US$510 billion.
Since 1990, the mainland's stock market has grown to be the third
largest in Asia, after Japan and Hong Kong, in terms of market
capitalization. In mid-2004, the number of stockbroking firms
totalled 170, and the number of offices in which they operated
throughout the country exceeded 2,000.
the majority of the listed companies are still State-owned enterprises,
and the majority of their share capital is held by various State
or provincial entities. The listed portion of those shares accounts
for less than one-third of the total market capitalization.
more, foreign investors and investment banks have only limited
access to China's stock market, which still has characteristics
typical of emerging markets, including low transparency, the prevalence
of connected party transactions and speculative trading.
terms of currency, the renminbi is still not fully convertible,
which restricts capital flows, especially outflows of funds. But
this should not blind us to the achievements that China has made.
Over the past 10 years, China has unified its currency by abolishing
the Foreign Exchange Certificate designated for use by foreigners
in the mainland. It also unified the renminbi exchange rate by
scrapping the foreign exchange swap centre in 1994. During this
period, China has accumulated the world's second largest foreign
currency reserves totalling over US$400 billion.
20 years, the renminbi will hopefully become a fully convertible
currency. First, it would mean that by then China would have a
very robust banking and financial system to handle the volatility
of the international financial flows in and out of China. Second,
it means that the economy can function more efficiently.
will also be highly likely that, by that time, the renminbi will
have become one of the three major international currencies in
the world, along with the US dollar and the euro. Renminbi will
be a currency for international payments and a store of value
in the form of a reserve currency held by many central banks.
that time, China's banking system will be characterized by the
presence of more private commercial banks, complemented by special-purpose
State-owned banks. The ownership restructuring currently taking
shape will go on.
clear delineation of the shareholder-management structure will
be in place, thus making the management accountable to the shareholders
and holding them responsible for their business decisions. Foreign
banks, which lately have been increasingly active in seeking strategic
partners in the mainland market, will be much more active.
20 years China's SOE reforms will be largely completed, and those
listed companies will no longer have separate classes of unlisted
state shares. There will be no separation for "A" shares
and "B" shares for different kinds of investors. The
QFII scheme will be a matter of history because foreign investors
will be able to participate freely in China's stock market.
financial industry will see the emergence of a larger number of
indigenous financial institutions: stockbroking firms, fund and
asset management companies and investment banks. Institutional
investors, from insurance companies to corporations, will be active
is happening right now, but in 20 years some of the indigenous
players might have grown to a scale comparable to their international
counterparts from the US and Europe, thanks to the huge domestic
household savings and the abiding desire of Chinese people to
invest their money.
will be an active bond market both for government securities and
private sector corporate bonds. The financial infrastructure will
be complemented by markets for financial derivatives such as futures
and options, in interest rates, renminbi or an equity index. Over
time most of the concerns about the substantial volatility and
risk of these markets will no longer be an issue as they increase