A Comprehensive History of banking in China

The history of banking in China is a long and fascinating one, spanning thousands of years. The earliest known banking system in China dates back to the Tang Dynasty, around 618-907 AD.

The first recorded bank in China was the Bank of Hankow, established in 1897 in the city of Wuhan. It was a Chinese-owned bank that focused on serving the local community.

As early as the 7th century, merchants and traders in China used paper money as a form of exchange, known as "jiaozi." This was a significant innovation in the history of Chinese banking.

The earliest recorded evidence of banking in China dates back to the Zhou Dynasty (1046-256 BCE), where merchants used silver ingots as a form of currency.

During this time, the use of silver ingots allowed for the development of early banking systems, where merchants could deposit and withdraw silver for trade.

The first known banking institution in China was the "Jade Hall", established during the Han Dynasty (206 BCE-220 CE), which provided a secure place for merchants to store their silver and other valuable items.

In ancient China, the use of silver ingots and the establishment of the Jade Hall laid the foundation for the country's early banking systems.

The Jade Hall was responsible for issuing and managing the silver ingots, which were used as a form of currency for trade and commerce.

The use of silver ingots and the establishment of the Jade Hall demonstrate the early beginnings of banking in China, paving the way for the development of more sophisticated banking systems in the centuries to come.

The banking industry in China was heavily impacted by the republican movement following the XinHai revolution in 1911, leading to a significant increase in the number of Chinese-owned banks.

Between 1920 and 1937, the number of Chinese-owned banks grew from 103 to 164, with assets exceeding 400 million Yuan. This growth had the effect of reducing the performance and influence of foreign banks.

The currency reissue between 1933 and 1935, and the Nationalist government's struggle to control currency flows, took time to resolve, leaving the industry unstable.

The onset of hostilities in 1937 marked the beginning of a period of consolidation and uncertainty for the industry, which lasted until the declaration of the People's Republic of China in 1949.

Prior to the communist victory in 1949, the PRC faction had already begun consolidating the industry, establishing the People's Bank of China in 1948.

From 1949 to 1965, the PBOC maintained an integrated and standardized banking system to promote economic rebuilding and provide basic functions of cash and debt issuance.

The bank continued to handle regular banking business for the republic, including state capital management, remittance, and foreign exchange, even as it supported the ongoing war on China's western frontier.

The PBOC suffered losses to its credit base and a weakening of the banking structure between 1966 and 1976, due to the disruption caused by the cultural revolution.

The bank was transferred to the ministry of finance in 1976, marking a move towards market economics and prudent economic management.

By 1977, the state council had begun to take measures to break up the centralized nature of banking, marking the first steps towards major change at the PBOC.

China's economic modernisation initiatives began in the late 1970s, marking a significant shift towards economic openness. This period saw the formation of four state-owned banks to handle commercial financing affairs.

Between 1978 and 1992, China's depositor base increased 19 fold and the lending base 13 fold. This rapid growth was driven by the rising international trade of the era. The state council allowed industry growth to further increase, alongside rapid economic growth.

In 1993, state-owned enterprises were permitted to operate new regional commercial banking institutions. This move aimed to increase access to financial services in different regions. The same year, the government introduced major legislative changes to support the growth of the banking sector.

The following year, China created policy banks to handle centrally planned economic growth. The Import Export Bank of China, China Development Bank, and the China Agricultural Development Bank were established in 1994. These policy banks played a crucial role in supporting specific sectors of the economy.

The banking system underwent significant reforms between 2002 and 2018. This period saw the greatest period of market modernisation in China's banking history. The reforms included greater product offerings, listing of domestic banks on foreign markets, and strengthened regulatory standards.

Here's a breakdown of the key reforms implemented during this period:

These reforms aimed to create a more competitive and efficient banking system. The period also saw the liberalisation and growth of related insurance, fund, and asset management industries. Foreign institutions were permitted to handle local RMB currency, further increasing market access.

The banking system in China has undergone significant changes over the years. The People's Bank of China, or PBoC, was the only financial institution allowed to operate until the early 1980s.

Five state-owned speciality banks were established, allowing them to accept deposits and conduct banking activities. These banks include the Industrial and Commercial Bank of China, the China Construction Bank, the Bank of China, the Bank of Communications, and the Agricultural Bank of China.

The Chinese government established three policy-making financial institutions in the middle of the last century: the ADBC, CDB, and ECB. These specialist banks cater to different types of borrowers.

The government retains control over these banks even after they went public through initial public offerings, or IPOs. The public's stake in each bank varies.

Over a hundred city commercial banks and a dozen joint-stock commercial banking organisations have been authorized to operate in China. This includes banks in urban and rural areas.

By the end of 2021, the total assets of the Chinese banking sector reached 288.6 trillion yuan, or $42.7 trillion.