All questions


The banking system in the People's Republic of China (PRC)2 was historically monopolised by the People's Bank of China (PBOC), first as the only bank, then later as the central bank of the PRC. After China started its economic reform and began opening up in 1978, and since the early 1980s, China has gradually opened its banking industry to embrace diversified ownership and sophisticated businesses. The Chinese banking system is still evolving under various reforms.3 In the early 1980s, the government allowed four state-owned specialised banks to accept deposits and conduct banking business, namely:

  1. the Industrial and Commercial Bank of China (ICBC);
  2. the China Construction Bank (CCB);
  3. the Bank of China (BOC); and
  4. the Agricultural Bank of China (ABC).

In 1986, the Bank of Communications (BCM) opened for business after being restructured into the first state-owned joint-stock commercial bank. Since then, ICBC, CCB, BOC, ABC and BCM have secured their positions as the five largest commercial banks in the PRC measured by gross assets. In addition, the Postal Savings Bank of China is now regarded as the sixth state-owned large commercial bank according to the latest official list of banking institutions in 2021.4 These six banks have all conducted initial public offerings (IPOs) and have diversified their state ownership to the public. Despite these IPOs, they are all still majority-owned by the central government. Apart from the six big banks, since the mid-1990s there have been 12 nationwide joint-stock banks, including CITIC Bank, Hua Xia Bank and Minsheng Bank, which have diverse equity structures comprising state ownership and private or foreign shareholding, as well as 130 city commercial banks.5 Since 2014, the government has also promoted the participation of private capital in the financial sector. To date, 18 privately owned banks have been approved,6 including internet banks, such as Zhejiang E-Commerce Bank and Shenzhen WeBank. These two banks were founded by the internet giants Alibaba and Tencent to provide internet financial services.

To encourage constructional, industrial and agricultural development, in 1994 China established three policy banks to fulfil special lending services for construction projects, import and export companies and the agricultural sector.7 There are also banks in China dedicated to rural areas of the country.8 In addition, foreign banks are allowed to establish subsidiaries and branches in China, and to make strategic investments in Chinese-funded commercial banks.9 As at the end of December 2021, the total assets of the Chinese banking system were 3376.579 trillion yuan.10 This volume marked an increase of 8 per cent year-on-year, with the five largest commercial banks controlling 1325.831 trillion yuan, or approximately 39.3 per cent of the total assets.11

Banking business in the PRC is primarily supervised and regulated by the China Banking and Insurance Regulatory Commission (CBIRC) (formerly known as the China Banking Regulatory Commission (CBRC)), together with the central bank, the PBOC, which is responsible, among other things, for formulating and implementing monetary policy. In addition, non-banking financial institutions, such as trust companies, financial leasing companies, foreign exchange companies, consumer financial companies and automobile financial companies, are also under the administration of the CBIRC.

The regulatory regime applicable to banks

Companies planning to conduct banking business or the business of taking deposits in the PRC are required under the PRC Law on Regulation and Supervision over Banking Industry (Banking Regulation Law) to be approved by the CBIRC.

i Main regulatory body

The CBIRC was formed via the merger of the CBRC and the China Insurance Regulatory Commission as part of the efforts of the central government to improve the efficiency of financial regulation and eliminate regulatory arbitrage. The CBIRC is responsible for drafting and promulgating the rules and regulations governing the banking and insurance sectors in China. It also examines and oversees banks and insurance companies, collects and publishes statistics on the banking system, approves the establishment or expansion of banks, and resolves potential liquidity, solvency or other problems that might occur to individual banks.

The CBRC was founded in 2003 to play the role of supervisor and regulator in the banking sector, which was previously performed by the PBOC. Nonetheless, the PBOC still has considerable influence over the PRC banking system. Aside from the typical central bank responsibility of monetary policy and representing the PRC in international forums, the PBOC is also in charge of reducing overall financial risk and promoting the stability of the financial system. Its supervision over interbank markets, foreign exchange markets, the payment and settlement system and the credit information system interim is crucial to the operation of banks in the PRC. Moreover, according to the Statement on the State Council's Institutional Reform Plan (2018),12 some of the authority for drafting key regulations and prudential oversight of banking and insurance companies has been transferred from the CBRC (now the CBIRC) to the PBOC.

ii Banking regulation structure

The PRC banking regulation structure is three-tiered.

At the top level sits legislation enacted by the National People's Congress, including the Banking Regulation Law (2006), the People's Bank of China Law (2003)13 and the Law of the PRC on Commercial Banks (2015) (Commercial Banks Law).14 Further important regulations concerning foreign banks were formulated by the State Council, namely, the Administrative Regulations of the People's Republic of China on Foreign-Invested Banks (revised in 2019).15 The CBRC (now the CBIRC) subsequently issued interpretive rules in December 2019 to implement these Regulations.

The second tier consists of regulatory policies issued by the CBIRC and the PBOC, which reiterate the legislative principles set out in the legislation enacted by the National People's Congress and the State Council. A range of policy matters were addressed by the CBIRC and the PBOC. The medium-term goal of the CBIRC focuses on a prudential framework, whereas the long-term goal is to establish a fair and competitive market. The PBOC, as the central bank, is responsible for making and implementing currency policy as well as supervision and management of the financial sector.

The third tier consists of the guidance, notices and rules issued by the CBIRC and the PBOC. Most of the regulatory rules issued by the CBIRC and the PBOC fall into this category. As China finds specific measures more helpful than a principles-based approach, the guidance, notices and rules are prescriptive in content and abundant in number. In general, the third tier of regulatory rules serves as the bottom rung of China's banking regulations, and deals with contemporary regulatory issues.

iii Licensing of banks

In terms of licensing, banks in the PRC are divided into two general categories: Chinese-funded banks and foreign-funded banks. The division is based on the status that the individual bank gained at its establishment. In other words, if foreign investors buy into an established Chinese-funded bank as promoters or strategic investors, that bank would keep its original status as a Chinese-funded bank in respect of its supervision and regulation by the CBIRC.16

Licensing for Chinese-funded banks

Commercial banks in the PRC are primarily governed by the Commercial Banks Law, and are licensed to undertake banking activities by the CBIRC or its local counterparts. To implement licensed bank activities, the CBIRC has promulgated the Implementing Measures for Administrative Licensing Matters Related to Chinese-funded Commercial Banks,17 which apply to, inter alia, the six aforementioned biggest commercial banks, joint-stock commercial banks and urban commercial banks, and the Implementing Measures for Administrative Licensing Matters Related to Rural Small and Medium-sized Financial Institutions,18 which apply to, inter alia, rural commercial banks, rural cooperative banks, rural credit cooperatives and county banks. According to these two sets of measures, the establishment, transformation or termination, and the business scope, of a commercial bank, as well as of its domestic and overseas branches, are subject to the approval of the CBIRC or its local counterparts. If a commercial bank intends to raise or issue debts and capital supplement instruments, or operate foreign exchange business, derivative products transaction business, credit card business, offshore banking business or other business, it shall seek approval from the CBIRC or its local counterparts separately. The PBOC's approval is required if commercial banks intend to conduct the business of settlement and sale of foreign exchange.

Licensing for foreign-funded banks

The State Council amended the Administrative Regulations of the People's Republic of China on Foreign-Invested Banks, and the CBIRC subsequently issued the implementing measures of the State Council Regulations19 (together, the Foreign-Funded Banks Regulations). Foreign financial institutions are allowed to establish wholly foreign-owned banks or Sino-foreign joint venture banks in the PRC, provided that the foreign investor meets the prudential requirements as specified in the Foreign-Funded Banks Regulations. The sole or major foreign investor should be a commercial bank and fulfil the capital adequacy requirements of the regulatory authority where it is located and the CBIRC. Foreign commercial banks are also allowed to establish branches and representative offices in the PRC in accordance with the prudential requirements as specified by the Foreign-Funded Banks Regulations.

Similar to Chinese-funded banks, a foreign-funded bank must obtain the CBIRC's approval for its establishment, any changes to its registered capital, articles of association, shareholders and business scope, and its termination. Foreign-funded banks, including wholly owned foreign banks, Sino-foreign joint venture banks and foreign banks' branches, shall seek separate approval from the CBIRC to engage in foreign currency and yuan business, such as:

  1. taking deposits;
  2. issuing loans;
  3. issuing and underwriting government debt securities;
  4. purchasing or selling government and financial debt securities;
  5. providing letters of credit or guarantees;
  6. providing international and domestic settlements;
  7. processing collections and payments (and insurance) in an agency capacity;
  8. interbank lending;
  9. banking card business; and
  10. other business approved by the CBIRC.

The above-mentioned banks must seek separate approval from the PBOC for the business of settlement and sale of foreign exchange. However, foreign banks' branches are excluded from conducting credit card business and yuan business towards Chinese citizens, except absorbing fixed-time deposits from Chinese citizens in an amount of no less than 500,000 yuan.20 The representative offices are only allowed to engage in non-business operations related to foreign banks represented by such offices, such as liaison, market survey and consultation activities.21

iv Securities activities

The Chinese bond market is now one of the largest in the world (only second to the US), with an estimated US$742.626 billion as at 31 December 2021.22 The China Interbank Bond Market (CIBM) was established on 6 June 1997. It is the market for securities trading and repurchasing for institutional investors (including commercial banks, rural credit unions, insurance companies and securities companies). The CIBM comprises the China Foreign Exchange Trading Center, the National Interbank Funding Center and the Central National Debt Registration and Settlement Company. The PBOC is the supervisory body of the CIBM.

Six major kinds of bonds are available in the CIBM:

  1. treasury bonds issued by China's Ministry of Finance;
  2. bonds issued by the PBOC;
  3. policy bank bonds issued by policy banks;
  4. financial bonds, including commercial bank bonds and non-bank financial institution bonds;
  5. corporate bonds issued by non-financial enterprises, commercial paper and medium-term notes; and
  6. other types of bonds, such as local government bonds issued by provincial or city governments, asset-backed securities and foreign bonds issued by foreign entities.23

Financial institution issuers, such as policy banks, commercial banks, finance companies and financial institutions with legal person status within the territory of China, need to obtain approval from the PBOC to issue financial bonds. Foreign-funded banks are also qualified to engage in debt trading in the CIBM according to the Foreign-Funded Banks Regulations.24

Foreign institutions incorporated outside of China are also permitted to issue bonds, also called Panda bonds, subject to the fulfilment of certain conditions and requirements. The government has further loosened the thresholds for foreign issuers by issuing new Panda bond measures in 2018.25 Currently, all types of issuers (except for financial institutions) are only required to apply for registration with the National Association of Financial Market Institutional Investors (NAFMII), a self-regulation body.26 On the other hand, overseas financial institutions are subject to stricter requirements when issuing Panda bonds, and have to meet demands set out in the new Panda bond measures and other related regulations.