Chinese banking reform from the pre WTO period to the financial crisis and beyond

THE NOTTINGHAM CHINA POLICY INSTITUTE SERIES Series Editors: S Yao and S.Tsang CHINESE BANKING REFORM FROM THE PRE-WTO PERIOD TO THE FINANCIAL CRISIS AND BEYOND Chunxia Jiang and Shujie Yao The Nottingham China Policy Institute Series Series Editors Shujie Yao School of Contemporary Chinese Studies University of Nottingham Nottingham, UK and Chongqing University Chongqing, China Steve Tsang School of Contemporary Chinese Studies University of Nottingham Nottingham, UK “This is a comprehensive text on the evolution of Chinese banking industry with robust supportive empirical evidence on important issues, such as bank efficiency and competition, over nearly four decades It also provides detailed elaboration on new developments in the post-crisis era such as shadow banking and internet finance It is an excellent text for researchers, policy makers, and practitioners to gain insights into the largest banking system in the world” —Iftekhar Hasan, Professor of Finance and Corrigan Chair in International Business and Finance, Fordham University, US “I heartily endorse this text, which provides a comprehensive insight into developments in Chinese banking The text includes chapters on banking sector performance, shadow banking, competition, Internet finance, in addition to key other issues The text is a must for students and scholars wishing to obtain a contemporaneous insight into developments in Chinese banking” —Philip Molyneux, Professor of Banking and Finance, University of Sharjah, UAE The Nottingham China Policy Institute series brings cutting edge ­scholarship, policy relevance and accessibility together It includes works on the economics, society, culture, politics, international relations, national security and history of the Chinese mainland, Taiwan and Hong Kong in the twentieth and twenty-first centuries Books in this series are written in an accessible style though they are based on meticulous research They put forward exciting ideas and research findings that ­specialist academics need to take note of while policy makers and opinion leaders will find inspiring They represent innovative multidisciplinary scholarship at its best in the study of contemporary China More information about this series at http://www.springer.com/series/14423 Chunxia Jiang · Shujie Yao Chinese Banking Reform From the Pre-WTO Period to the Financial Crisis and Beyond Chunxia Jiang Middlesex University London, UK Shujie Yao University of Nottingham Nottingham, UK and Chongqing University Chongqing, China The Nottingham China Policy Institute Series ISBN 978-3-319-63924-6 ISBN 978-3-319-63925-3  (eBook) https://doi.org/10.1007/978-3-319-63925-3 Library of Congress Control Number: 2017949207 © The Editor(s) (if applicable) and The Author(s) 2017 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Cover credit: robertharding/Alamy Stock Photo Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Contents 1 Introduction 1.1 Research Questions and Research Objectives 1.2 Book Map and Chapter Synopses 1.3 Conclusion 12 References 13 The Evolution of the Banking Sector in China 15 2.1 A Brief History of Banking Reform 16 2.1.1 Initial Institutional Restructuring During 1979–1984 17 2.1.2 Further Institutional Restructuring During 1985–1994 18 2.1.3 Banking Commercialization During 1995–2002 20 2.1.4 Banking Modernization During 2003–2010 24 2.1.5 Banking Development in the Post-Crisis Era from 2011 Onwards 28 2.1.6 Foreign Banks in China 31 v vi     Contents 2.2 The Theoretical Underpinnings of Banking Reform and Development 35 2.3 A Snapshot of the Chinese Banking System 38 2.3.1 The Status Quo of the Chinese Banking Sector 38 2.3.2 An Assessment of Major Commercial Banks’ Soundness and Performance 40 2.4 Conclusion 54 References 55 Banking Reform and Bank Performance in China 57 3.1 Efficiency Concept and Bank Efficiency Literature 58 3.1.1 Efficiency Concept 58 3.1.2 Bank Efficiency Literature 61 3.2 Research Methodology 66 3.2.1 Estimating Best Practice Frontier and Efficiency 66 3.2.2 Stochastic Frontier Analysis (SFA) 67 3.3 Theoretical Foundations of Banking Reform Strategy 70 3.3.1 Hypothesis 70 3.3.2 Model and Data 71 3.3.3 Empirical Results and Analysis 73 3.4 The Impact of Privatization on Bank Efficiency 78 3.4.1 Model and Data 78 3.4.2 Empirical Results and Analysis 82 3.5 Conclusion 87 References 88 The Global Financial Crisis and Banks in BRIC Countries: A Comparative Perspective 93 4.1 Literature Review 94 4.1.1 Literature on Developing Countries and Transitional and Emerging Economies 94 4.1.2 Literature on Banking Concentration, RiskTaking, and Performance 97 4.2 The Background of BRICS 100 4.2.1 An Overview of BRICS’ Economies 100 Contents     vii 4.2.2 The Evolution of the Banking Systems in BRICS 104 4.3 Research Methodology 108 4.3.1 Models and Variables 108 4.3.2 Data 113 4.4 Empirical Analysis 116 4.4.1 Results from Frontier Estimations 116 4.4.2 Results from the Inefficiency Effect Model 119 4.4.3 Robustness Tests 122 4.5 Conclusion 127 References 129 Banking Competition in China 135 5.1 Measures of Competition 136 5.1.1 Structural Approach 136 5.1.2 Non-structural Approach 137 5.2 Literature on Banking Competition 143 5.3 Research Methodology and Data 149 5.3.1 Structural Measure of CRn and HHI 149 5.3.2 The Lerner Index of Market Power 149 5.3.3 Panzar and Rosse (1987) H-Statistics 150 5.3.4 The Boone Indicator 152 5.3.5 Data 153 5.4 Competition of the Chinese Banking Sector 156 5.4.1 Structural Measure of CR4 and HHI 156 5.4.2 The Lerner Index of Market Power 156 5.4.3 The Panzar and Rosse (1987) H-Statistics 162 5.4.4 The Boone Indicator—the Profit Elasticity Approach 163 5.4.5 A Comparison of Results from Different Measures of Competition 164 5.5 Conclusion 167 References 167 Shadow Banking in China 175 6.1 Shadow Banking and Its Development 176 viii     Contents 6.1.1 Definition 176 6.1.2 Relationship with Traditional Banking System 179 6.1.3 The Status Quo and Driving Factors of Shadow Banking 181 6.1.4 Contributing Factors for Global Development of Shadow Banking 183 6.2 Shadow Banking in China 186 6.2.1 Defining the Shadow Banking Sector in China 186 6.2.2 The Evolution and Driving Factors of Shadow Banking in China 189 6.2.3 Types of Shadow Banking in China 192 6.2.4 Impact of Shadow Banking in China 193 6.3 Main Products of Shadow Banking in China 195 6.3.1 Trust Loans 195 6.3.2 Bank Wealth Management Products (WMPs) 198 6.3.3 Entrusted Loans and Undiscounted Bankers’ Acceptances 202 6.3.4 Other Instruments and Institutions in the Shadow Banking Sector 203 6.4 Risks and Regulatory Framework 204 6.4.1 Risks 204 6.4.2 Regulatory Framework 206 6.5 Conclusion 218 References 219 Internet Finance in China 223 7.1 Definition and Status Quo 224 7.2 The Development of Internet Finance 227 7.2.1 The Forces Driving the Development of Internet Finance 227 7.2.2 An Overview of Internet Finance Activities 231 7.3 Major Practices in Internet Finance 233 7.3.1 The Internetization of Traditional Finance 233 7.3.2 The Emergence of Innovative Internet Financial Institutions 238 Contents     ix 7.3.3 Internet Financial Infrastructure 242 7.4 Theoretical Framework and Regulation 245 7.4.1 Theoretical Framework 245 7.4.2 Risks and Challenges 247 7.4.3 Regulation 249 7.5 Conclusion 259 References 259 The Global Financial Crisis and China’s Pawnbroking Industry 263 8.1 Research Background and Pawnbroking Industry in China 264 8.1.1 Research Background 264 8.1.2 The History of Pawnbroking Industry and Pawn Rules in China 266 8.2 Main Features of the Pawnbroking Industry in China 269 8.3 Pawnbroking as an Important Financing Source of SMEs in China 274 8.4 The Impact of the Global Financial Crisis on the Pawning Industry in China 278 8.5 Conclusion 282 References 289 Conclusions and Policy Implications 293 9.1 Current State of the Chinese Banking System 295 9.2 Economic Rationale of Banking Reforms and Bank Efficiency in China 298 9.3 The Effects of Institutional Changes on Bank Efficiency 304 9.4 Findings with Respect to Research Methodology 308 9.5 Policy Implications, Remaining Problems and Possible Solutions 311 Index 315 Index     317 capital risk 120 concentration ratio 113 coordination and cooperation 100 economies 100–104 efficiency 118–119 foreign banks 121 GDP growth rate 101, 102f, 104, 117t, 121, 123t, 125t, 128 inefficiency effect model 119, 120–122 literature on 94–97 net interest spread 122 New Development Bank 94, 100, 101, 306, 307 population 99, 100 “quiet life hypothesis” 120 results from frontier estimations 116, 117–119 state ownership 121 stock market 122 tests for robustness 122–127 under-capitalization 116 and world GDP 101 Brissimis, S.N et al 2008 99 Budgetary constraints theory 8, 36, 37, 70, 87 C CAC (Cyberspace Administration of China) 258 Cape of Good Hope Bank 108 Capital adequacy 22, 23, 41–44 Capital adequacy ratios 41, 42, 43 Capital e-commerce 243 Capital flight 313–314 Capitalization and efficiency 77, 95 low 21, 42, 49, 77, 106, 116, 147, 198 market capitalization 1, 5, 25, 55, 112, 302 over-capitalization 42, 120 second round 24–25 state 71, 73 Capitalization ratio 72, 112 Capital regulation 23, 62, 147 Capital risk 99, 111, 116, 120, 122 Capital Rules for Commercial Banks 42 Carbó, S et al 2009 142, 143 Caskey, J.P 272 CBR (Central Bank of the Russian Federation) 106 CBRC (China Banking Regulatory Commission) current banking system 38, 39 establishment of 26, 27 impact on profit efficiency 87 Internet finance regulation 251, 252 “Notice on Warning of Risks Associated with Peer-to-Peer lending” 258 on P2P regulation 239, 258 Regulation Governing Capital Adequacy of Commercial Banks 42 and trust loans 197 as variable 81 and WMPs 209 and WTO accession 31–32 CCBC (China Construction Bank Corporation) E/A ratio 43 foreign investment 25 government injection 24 history of 17 IPO 34 liquidity ratio 53 318     Index listing on Stock Exchange 25 profitability 5, 51 regulatory capital ratios 43 CCBs (City Commercial Banks) competition 160–161 cost frontier model 84 creation of 21 foreign banks equity stake in 32 private capital share 30 profitability 49 profit efficiency 84, 87 reform 23, 26 Central Bank of Brazil 104 Central Bank of the Russian Federation See CBR Central Huijin Investment Company 24, 26 Chen, X et al 2005 66 Chengdu Hua Mao Pawnshop, Sichuan Province 268 China Banking Regulatory Commission See CBRC China CITIC Bank Corp 235 China Construction Bank Corporation See CCBC China Credit Trust Company 205 China Development Bank 19, 26 China Everbright Bank 32 China Great Wall Asset Management Company 22 China Huarong Asset Management Corporation 22 China Insurance Regulatory Commission See CIRC China Merchants Bank 75, 237 China Postal Group 26 China Securities Regulatory Commission See CSRC China Statistical Yearbook 81 China UnionPay 303 Cinda Asset Management Company 22 Cipollini, A and Fiordelisi, F 146 CIRC (China Insurance Regulatory Commission) 252, 257 City Commercial Banks See CCBs Citigroup 25, 32 Claessens, S and Laeven, L 144 Claessens, S and Ratnovski, L 177, 178 Claessens, S et al 2001 121 Cobb-Douglas production function 71 Commercialization reform 20–24, 225 Competition 135–167 Boone Indicator-Profit Elasticity Approach 163–166 comparison of different measures 164–166 concentration ratio 136 data logging 153–156 H-Statistics 162, 163, 165–166 HHI index 136, 137 Lerner Index of Market Power 156, 157–161 literature on 143–148 non-structural approach 137–142, 143 structural approach 136, 137, 149, 156 Competition-fragility view 98, 145, 146, 147 Competition-stability view 145, 146 Concentration ratio 105, 106, 108, 113, 136, 149, 156 Index     319 Contestable market theory 138–140 Core financial soundness indicators 40, 41–54 asset quality and NPLs 45–48 capital adequacy 41–44 liquidity 51–54 profitability 49–50, 51 Corporate governance 18, 24–25, 27–30, 37–38, 71, 77–78, 302 Cost and profit efficiency 57, 78, 82–87, 138 Cost efficiency 82–87 and competition 148 definition 60 and market power 98, 145 measurement 59 production approach 69 and state ownership 64, 96 WTO accession and Cost frontier model 59, 78, 82–83, 84 Cost function, 83t and alternative profit function 61, 80 and cost efficiency 60 and equity 80 marginal costs and 137 and output distance function 109 Cost minimization 59, 78, 277 Credit plan 22 rating system 242 risk 111, 120, 121 and shadow banking 176, 177, 191, 192 Credit to GDP ratio 190 CreditEase 225, 227 Crowdfunding 240–241, 242 CSRC (China Securities Regulatory Commission) 252 C-Trip 234 Cyberspace Administration of China See CAC D Davos World Economic Forum 2015 228 DEA (data envelopment analysis) 66, 67, 127, 308 Decision-making units See DMUs Delis, M.D 142, 143, 144, 166 Delis, M.D and Tsionas, E.G 98, 139, 142, 145 Delis, M.D et al 2016 62 Demohour 240, 241 Deng Xiaoping 16 Deposits branch network 75, 76 competition 147 direct banks 235 insurance 96, 146, 160, 176 interest rates 147, 299, 300, 301, 312 intermediation approach 80, 111 and loans 75 market power 143 traditional banks 180 WMPs 189, 191, 198, 201, 205 Deregulation 35, 62, 95, 96, 143, 144, 148 DFA (distribution free approach) 66 Direct banks 235–236 DMUs (decision-making units) 66 Durban, BRICS Summit 100 320     Index E E/A ratio 43, 44, 72, 73, 77 Earning assets-based model 111, 120–121 E-commerce 30, 230–231, 232t, 234, 237–238, 243–244, 251 Efficiency concept 58–61 definition of 58, 59 deregulation and 62 estimation approaches 66–67 impact of reform 298–307, 308 inefficiency 229–231 inefficiency effect model 81, 84 literature 61, 62–65, 67 mean efficiency levels, 84f privatization of banks and 78–87 public trading and 65, 86 Efficient structure hypothesis 97, 136, 141 EIBC (Export-Import Bank of China) 26 E-malls 235, 237, 238 EPayment, 226f Equity capital and bank insolvency 80 capital adequacy 41, 42 competition 143–144 global financial crisis 279 growth rate 101 impact of competition 145 EU (European Union) EMU (Economic and Monetary Union) 145 GDP growth rate 101, 102f global financial crisis 294 literature on competition 143, 145, 146 Eurozone 1, 186 Exchange liberalization 313, 314 Exchange rates 312–314 Export-Import Bank of China See EIBC Exports 19, 279, 280 F Farrell, M.J 58 Farrell efficiency, 58f FDH (free disposal hull) 66, 67 Federal Reserve Bank 141 Financial business conduct regulation 250, 251 Financial Crisis Response Group 207 Financial intermediation 2, 11, 18, 65, 105, 194, 209, 245–246 See also MUNFI Financial liberalization 3, 20, 22, 144, 147, 236 Financial Regulatory Coordination Joint Ministerial Committee See JMC Financial Stability Board See FSB Financial Stability Bureau 209 Financial Stability Report 2014 224 Financial Stability Report 2015 208 FinTech 223 Fiordelisi, F et al 2011 62, 99 Fixed investment loans 22 Foreign banks 31–34 assets 32 equity stake in domestic banks 32, 34, 65 financial liberalization 22, 301 minority ownership 78, 85, 86 NPL ratio 46 profitability 49 investment in SOCBs 25 Index     321 and WTO 298 Fortaleza, Brazil, BRICS Summit 100 France 144 Fraud, Internet finance 251 Free disposal hull See FDH FSB (Financial Stability Board) 178, 182, 206 Fu, X and Heffernan, S 148 Fu, X et al 2007 66 Fuioupay 242 Funds, price of, definition 80 Fungáčová, Z., et al 2010 96, 147 Fungáčová, Z, et al 2013 148, 157, 160 G GDP (gross domestic product) 6, 298 growth rate 43, 82, 101, 102f, 103, 112 Generalized method of moments estimation approach See GMM Global financial crisis 2008 BRICS 93–128 capital ratios and 43 and modernization and pawnbroking industry 263– 264, 266, 268, 278, 279–282 profit efficiency 83 restructuring after 230 GMM (generalized method of moments) estimation approach 163 Goddard, J and Wilson, J.O.S 144 Goldman Sachs 25 Gongxin Pawnshop 273 Gorton, G and Metrick, A 178 Guangdong Development Bank 75 Guangdong province 23 Guideline on the Corporate Governance Reforms and Supervision of State-owned Commercial Banks 27 “Guiding Opinions on Promoting the Healthy Development of Internet Finance of Crossborder E-commerce” 224, 233, 251, 252 H Haitong Securities Company 234 Hakenes, H and Schnabel, I 146 Hangzhou 268 Hangzhou City Trade Bureau 269 Hao, J et al 2001 64 Hengfeng Pawnshop 273 HHI (Herfindahl-Hirschman Index) 136, 137, 148, 149 Housing market, expansion of 301, 303–304, 314 HSBC (Hong Kong and Shanghai Banking Corporation) 32, 34 H-statistics 139–142, 144, 148, 150–152, 162, 163 I ICBC (Industrial and Commercial Bank of China) E/A ratio 43 foreign investment 25 history 17 government injection 24 listing on Stock Exchange 25, 26 market capitalization regulatory capital ratios 43 WMP 205 322     Index IFC (International Finance Corporation) 32 IMF (International Monetary Fund) Compilation Guide on Financial Soundness Indicators 40 financial soundness indicators for capital adequacy 41–44 liquidity indicators 52 shadow banking 193 special drawing rights (SDR) 312 Import-Export Bank of China 19 Incentives agent-principal problem 38, 70 and bank appointments 302 crowdfunding 240 securitization 184 shadow banking 192 state ownership 63–64, 71, 96, 97, 107 trust sector 198 Income-based model 111, 120–121 Incorporated banking institutions 38, 39 India banking system 107 competition 148 growth rate 101, 102f literature 96 non-bank sector 181 pawnbroking industry 273 poverty 103 state owned banks 65 Indicative non-binding targets 22 Indonesia, pawnbroking industry 273 Industrial and Commercial Bank of China See ICBC Industrial organization theories 35 Inefficiency 229–231 Inefficiency effect model 81, 84 Informal financial institutions 265 Information, digitalization of 228 Initial public offerings See IPOs Innovation and competition 29, 35, 146 in emerging economies 101 and information technology 30, 31, 228 Internet finance 231, 232t, 233, 235, 238–241, 242, 249, 303 and regulation 178, 190, 209 shadow banking 185, 208, 209 Input-orientated model of technical efficiency 59 Insolvency 21, 41, 54, 64, 80, 293, 297 Institutional reform 17–19, 20 Interbank markets 22, 112, 116, 121, 191, 199, 201–202, 206 Interbank Offered Rate 22 Interest rates floating ranges 22 liberalization 22, 301, 302 pawnbroking and usury 270, 280 spread 296, 297 Intermediation approach 69, 80, 111 International Finance Corporation See IFC International Monetary Fund See IMF Internet finance 223–259 banking sector 234–235 business model 230–233 competition 249 definition of 224 development 227, 228–231 economies of size 246–247 Index     323 expansion 5, 30, 302, 303 forms of, 232t government support for 227, 228 growth of 224, 225–226 infrastructure 242–244, 245 innovation and uncertainty 249 insurance sector 234 intermediation function 231 Internet only companies 234 largest companies 307 long-tail risk 247, 248 market size, 226fig, 227 payment gateway services 242 regulation 248, 249, 250–258, 259 risks and challenges 247–249 services functions 231 third-party payment platform 242–244 and traditional finance 233, 234–238 IPOs (initial public offerings) 3, 5, 25–26, 78, 82, 86–87, 230, 301 IPS 243 Iwata model, 138n1 J Japan, banking assets Jia, C 96 Jiang, C et al 2013 111 Jingdong 230 Jinzhanghu 3.0 242 JMC (Financial Regulatory Coordination Joint Ministerial Committee) 208 Joint-stock ownership and budgetary constraint theory 71 PSBC 28 SOCBs 24, 25, 34, 38, 73, 76f, 77, 87, 158 JSCBs (joint-stock commercial banks) capital adequacy 23 competition 153, 154–161 cost and alternative profit function, 83t cost efficiency 87 cost frontier model 84 efficiency 70–77 foreign banks stake in 32 liquidity ratio 52 market share 39–40 NPL ratio 46, 47f profitability 49, 50f profit efficiency model 84 shareholding ownership structure 18 technical inefficiency effect model 72–73 WMPs 199, 200f K Karas, A et al 2010 96 KCB (KinCheng Bank of Tianjin) 29, 236 Koetter, M 80 Koetter, M et al 2012 98, 138 Kornai, J 36 Kumbhakar, S.C and Sarkar, S 96 Kumbhakar, S.C et al 2012 138 L Labour cost of 72, 80, 81t, 150, 151, 155t 324     Index and efficiency 75, 76 fixed 274 La Porta, R et al 2002 64 Latin America 147 Law of the People’s Republic of China on Commercial Banks 1995 20 Lehman Brothers Leibenstein, Harvey 59 Lerner indices 137–138, 142, 144, 148, 149–150 LGFVs (local governmental financing vehicles) 194 Li Keqiang 228 Liquidity 51–54, 180–181, 184, 186, 193, 245 Liquidity ratio 52–53 Liquidity risk 99, 112, 116, 121, 178–179, 205–206, 249, 251 Liu, H et al 2013 146 Loan-classification system 21, 23, 45, 46 Loan model 73, 75–77 Loan production frontier 75 Local governmental financing vehicles See LGFVs Lombard Bank 107, 108 Long You HJ Pawnshop 281–282 Long You YQ Cloth Art Firm 281–282 Lovell, C.A.K et al 1994 109 M Maritime Silk Road 306 Market capitalization 1, 5, 25, 55, 112, 302 Market concentration 97–99, 111, 120, 136, 137 Market risk 112, 116, 121, 128 “Mass finance” 299 Matthews, K et al 2007 143 Maudos, J and Fernández de Guevara, J 98, 145 Maudos, J and Solis, L 147 McCulley, P 176 McKinsey China 248 Meeusen, W and van den Broeck, J 66 Mexico 147, 184 Micro and small enterprises See MSEs “Micro credit” 30 Micro-loans 237 MIIT (Ministry of Industry and Information Technology) 258 Ministry of Finance See MOF Ministry of Public Security See MPS Mirzaei, A and Moore, T 144, 145 Mishkin, F 245 Mobile phones and Internet use 229 Modernization 4–5, 7, 16, 24–27, 42, 50, 53 Modil, Narendra 103 MOF (Ministry of Finance) 26, 296 Monitoring Universe of Non-bank Financial Intermediation See MUNFI Monobanking 7, 16 Monopoly Brazil 95 competition approaches and 98, 139–140, 142, 143–145, 147, 148, 150–151, 160, 162 efficiency 296 initial restructuring 17 moral hazard problem 35 Index     325 profit maximization 137 and “quiet life” 97, 120 state and private 310 Moral hazard problem bailouts and 23, 36 liberalization of interest rates 302 monopoly and 35 NPLs and 38 pragmatic approach to 294 and risk 122 soft budget constraint and 23, 64, 73, 77 state ownership 107, 297, 299, 301 Mortgages 266, 268, 270, 271, 273, 282, 301, 303 MPS (Ministry of Public Security) 258 MSEs (micro and small enterprises) 29–30 Mueller, D.C 141 MUNFI (Monitoring Universe of Non-bank Financial Intermediation) 182–183 MYbank 236, 237 N National Congress of the Chinese Communist Party 2012 284 National Financial Work Conference 24 National Pawnbrokers Association, UK See NPA NEIO (New Empirical Industrial Organization) 138, 144 Network banks 234, 235, 237 Newbridge Capital 34 New Delhi, BRICS Summit 100 New Development Bank, BRICS 94, 100, 101, 306, 307 New Empirical Industrial Organization See NEIO Niche markets 17, 29, 158, 160, 205 Non-bank sector 181, 190, 191, 195, 201 Non-parametric approach 66–67 NPA (UK) (National Pawnbrokers Association) 271 NPL (non-performing loan) ratio 24, 45–48 NPLs (non-performing loans), 47t commercial banks 46 increase in 1, 19, 23, 38 and insolvency 80 offloading of 22, 24, 42 as percentage of GDP 21 reduction in 24 SOCBs, 48f, 84, 85 stripping of 293, 297 O OFIs (other financial intermediaries) 182–183 Oligopoly 138, 139, 142, 151, 237 Olivero, M.P et al 2011 147 “One Belt, One Road” initiative (BRI) 306–307 O’Neill, J 100 Online banking 225, 235–237 Online peer to peer lending See P2P Operational performance parameters 27 Oriental Asset Management Company 22 Other financial intermediaries See 182–183 326     Index Output distance function approach 94, 108, 109 Output-orientated model of technical efficiency 59 Over-capitalization 42, 120 Overheating of economy 21, 46 Ownership diversification 3, 25, 294, 301, 307, 309, 310 P P2P lending 225, 227, 238–240, 242, 258, 259, 304 Panzar and Rosse H-Statistics 139–142, 144, 148, 150–152, 162, 163 Parametric approach 66–67 Park, K.H and Weber, W.L 80 Pawnbroking industry 263–284 control of interest rate 280 comparison with bank loans 269, 270 density of 272 and global financial crisis 278–284 history of 266–269 impact of fiscal stimulus 279 lack of profitability 269 property rights 271, 273 size of loans 272, 273 and SMEs 274–278 Paypal 243 PBOC (People’s Bank of China) “Administrative Measures for credit Rating of Non-Banking Payment Institutions” 258 as central bank 20 and global financial crisis 281 history of 16, 17, 296 and interest rates 27, 302 “The Guiding Opinions on Promoting the Healthy Development of Internet Finance” 224, 233 Internet finance regulation 252 issue of payment licenses 225 new regulations for online payment firms 244, 245 “Notice of the Guidelines against Money Laundering and Terrorist Financing” 258 pawning industry 280, 281 regulatory body 21, 38 People’s Construction Bank of China (later China Construction Bank) 16, 17 People’s Republic of China, foundation of 16 Persistence of profit hypothesis 141, 142 Philippines, pawnbroking industry 273 Physical capital 72, 81, 150, 151, 155t Ping An 234 Policy lending banks 19, 20, 21, 26 Postal Savings Bank of China See PSBC Postal savings 26, 28 PPdai 239 PRH statistics 139 Principal-agent problem 37, 294, 299, 302, 309 Privatization partial 3, 5, 77, 107 and performance 9, 65, 78–87, 95 pilot scheme 29–30 SOEs 305, 306 Index     327 Production approach 69 Production frontier 58, 66, 69, 72, 74t, 75 Profit efficiency 8, 57, 60–62, 78, 82–87, 95, 98, 138 Profit function 61, 78, 80, 109 Profit maximization JSCBs 18 and monopoly 137 and oligopoly 139–140 and performance 59, 60, 64, 80 SOCBs 27, 78 Profit model 71, 73, 75–77 Provincial branches, merging of 21 PSBC (Postal Savings Bank of China) 26, 28 Q “Quiet life hypothesis” 97, 98, 120, 145 R Random errors and efficiency 67, 68 RCBs (rural commercial banks) 29, 39, 40t, 47f, 49, 50f, 154t–155t, 158–161 RCCs (rural credit cooperatives) interest rates 22 restructuring and reform 17, 18, 19, 21, 26, 29 share of assets, 40t within banking system, 39f Recapitalization 5, 24, 43, 44, 51, 106, 297 Reform market-oriented 103–104, 264 and performance 57–87, 88 period of 6, 16 post-crisis 28–30, 31 rationale 298–304 theory 35–38, 70–77 Regulation and central government 252 increased 22–23 Internet finance 250–258, 259 and profit efficiency 87 strengthening of 26, 27 Regulatory arbitrage Internet finance 250 shadow banking 10, 178, 180, 181, 183, 184, 186, 187, 189, 191, 195, 206 Relative-market power hypothesis 62, 148 Report on the Work of the Government 2015 228 Repurchasing interest rates 22 Reserve requirement 22, 27, 184, 190 Reserve requirement ratio See RRR Return on assets See ROA Return on equity See ROE Revenue efficiency 59, 60 Risk capital 99, 111, 116, 120, 122 credit 111, 120, 121 institutional 205 Internet finance 247–249 liquidity 99, 112, 116, 121, 178–179, 205–206, 249, 251 literature on 98–99 overall 112, 121 shadow banking 204, 205–206, 207, 209 Risk assessment 209 ROA (return on assets) 49–51, 52f Robustness test 328     Index earning assets-based model, 125t–126t income-based model, 123t–124t ROE (return on equity) 49–51, 52f Rosse–Panzar H-statistics 139, 140– 142, 144, 148, 150, 151–152, 162, 163 Royal Bank of Scotland 25 RRR (reserve requirement ratio) 281 Rural commercial banks See RCBs Rural credit cooperatives See RCCs Russia Banking Sector Development Strategy 106 banking system 105, 106 commodity-based growth model 102–103 competition 147, 148 GDP 106 growth rate 101, 102f literature on 96 regulation 106 state banks 105, 106 S SASA (State Administration of State Assets) 305, 306 Scale efficient structure hypothesis 62 Schizophrenic approach 68 SCP (Structure-ConductPerformance) hypothesis 61, 62, 97, 136 SDR (special drawing rights) 312 Search-for-yield effect 186 Securities Act 240 Securitization 177, 179, 180, 184–187 SFA (stochastic frontier analysis) 66–70, 75, 108, 111, 127, 138, 308 Shadow banking 175–219 collateral intermediation 185, 186 cooperative supervision 218 criteria 178, 179 data collection and risk assessment 209 definitions 176–179 driving factors of 181–183 entrusted loans 202, 203 evolution of 189–192 expansion of 5, 30, 191 financial innovation and technological advancement 185 and financial instability 194, 195 and GDP, 188t, 191 global development of 183–186 impact of 193, 194–195 and institutional risk 205 Internet providers 204 liquidity risks 205, 206 maturity mismatch 206 pawnshops 203, 204 regulation 206, 206–218 regulatory arbitrage 183, 184, 187, 191 risks 204, 205–206, 207, 209 scope of 187–189 securitization 185, 186 and traditional banking system 179–181 trust loans 195, 196–198 types of 192–193 Shaffer, S 139, 151 Shanghai Huarui Bank 29, 30, 236 Index     329 Shanghai New Development Bank 100 Shanghai Pudong Development Bank 75 Shanmugam, K.R and Das, A 65 Shareholding ownership structure 18, 77, 294 Shenzhen 22 Shenzhen Development Bank 34, 75, 86 Shenzhen Qianhai WeBank 30 Shephard, R.W 109 Shumi Fund, Zhejiang 251 Silk Road Economic Belt 306 Silk Road Fund 306, 307 Small-and medium-sized banking institutions 28, 29 SMEs (small and medium-sized enterprises) and global financial crisis 278–284 interest rates and 302 and Internet finance 231 new employment 298 number of 265 pawnbroking and 263–266, 274–278 private lending to 299 SOCBs (state-owned commercial banks) bailout 21, 22, 49–51, 83 capital adequacy ratios 43, 44f capitalization 42 cost efficiency 87 cost frontier model 84 E/A ratio 43, 44 efficiency 65, 66, 75, 76–77 equity to total asset ratio, 45f finance to SOEs 85 financial deregulation 35 foreign banks minority stakes 34 going public 25, 26–27 insolvency 21 liquidity ratio 52–54 long-term goals 27 NPL ratio 45–48 profit efficiency model 84–85 recapitalization 51 reform 20–25 status as commercial banks 78 technical inefficiency effect model 72–73 Socialist market economy 304–305 SOEs (state-owned enterprises) financing of 17, 19, 20, 63, 64, 84, 85 reforms 4, 21, 264, 305–307, 312 Soft budgetary constraint 70, 77, 300, 309 SOPBs (state-owned policy banks) 19, 21, 40t South Africa banking system 107, 108 elections 104 growth rate 101, 102f membership of BRICS 100 South African Reserve Bank 108 SPC (State Planning Committee) 296 Special drawing rights See SDR Special Economic Zones 31 Spong, K et al 1995 65 Sri-Lanka, pawnbroking industry 273 Standard profit efficiency 60, 61 Standard profit function approach 61 State Administration of State Assets See SASA 330     Index State Council, regulation by 20, 207–208 State-owned commercial banks See SOCBs State ownership of banks BRICS 96 and competition 301, 307 developing and emerging countries 95 and efficiency 3, 63–65, 75, 77, 107, 121, 128, 266, 297, 299 history of 16 and JSCBs 70–73 lending decisions 96, 97, 305 market share 294, 311 NPLs 293 as political 63, 309, 310 principal-agent problem 37, 38 profitability of 294 restructuring 5, 17–20, 296, 300, 309 social market system 305 soft budget constraint 36 See also SOCBs; SOPBs State Planning Committee See SPC State Planning Commission 16 Stimulus packages and bank lending 190 and capital ratios 43 and GDP growth rate 104 after global financial crisis 300 impact on pawnbroking industry 264, 278, 279, 281, 283 and NPL ratio 46 Stochastic frontier analysis See SFA Stock market, underdevelopment of Structure-Conduct-Performance hypothesis See SCP Styrin, K 96 T Tabak, B.M et al 2015 95 Taikang Life Insurance 234 Taikang Online 234 Tang 2016 148, 157 Taobao 234 Technical efficiency 58–59, 71 Technical inefficiency effect model 72, 76–77, 111 Temer, Michel 102 Tencent 234, 236, 307 TFA (thick frontier approach) 66 Third-party payment services 225, 243 Tiantian Fund, Shanghai 251 Tier capital 41, 42, 43, 44f Total Social Financing (TSF) indices 209 Traditional banks 235, 245, 246 Two-tier banking system 17, 19 U U-BANK8 237 UCCs (urban credit cooperatives) 18, 21, 29 Ufa, Russia, BRICS Summit 100 UK, pawnbroking industry 271 UnionPass 303 United States banking assets competition 144, 147 direct banks 235 efficiency approaches 66 growth rate 101, 102f innovation 146, 185 Index     331 pawnbroking industry 272 publicly traded banks efficiency 65 “quiet life hypothesis” 98 quantitative easing 279 shadow banking 206–207 Usury 270 V Van Leuvensteijn, M et al 2011 143 Vertical search engines 234, 235 Village and township banks 29 Wu Ying 299 X X-efficiency 59, 62, 145 Xiang Yi Rong Tong Co., Ltd 274, 275t Xie, P and Zou, C.W 228, 247 Xie, P et al 2016 224, 246 Xi Jinping 306 Xu, B et al 2013 148, 157, 162 Y W Wang, H.P and Schmidt, P 68, 69 WeBank 236 WeChat 226 WeChatPay 226, 227, 303 Weill, L 143 Wenzhou Minshang Bank 30, 236 WMPs (wealth management products) 197, 198–201, 202, 205, 206 Working capital loans 22 World Bank, “Financial Structure Dataset” 112 WTO (World Trade Organization), Chinese accession to and capital adequacy 42–43 and cost efficiency 86, 87 foreign institutions 4, 22, 23, 31–32 impact of 9, 73, 76, 77, 300 modernization 24, 42 as variable 81 Yan, Q and Li, J 187 Yekaterinburg, Russia, BRICS Summit 100 Yirendai 227 Yong Kang HF Pawnshop 281–282 Yong Kang XD Door Making Company 281–282 Yu’e Bao 226, 231, 234, 252 Z Zhang, J et al 2012 96 Zhao, T et al 2010 148 Zhejiang MYbank 30 Zhejiang Province, pawnbroking industry 30, 239, 263, 268, 270–283, 299 Zhenfu Energy Group 205 Zhiku (pawnshop in temple) 266 Zhong An 234 Zhong An Online 226, 234 ... point in understanding the Chinese banking sector The book map and chapter synopses enable readers to gain a preliminary understanding of the Chinese banking sector in terms of the evolutionary... competition in the Chinese banking industry Part of this book unveils the new developments in the Chinese banking sector in the post -crisis era Chapter elaborates why and how the shadow banking sector has... banking industry to a market-oriented system This was shortly reinforced by China’s accession to the WTO in 2001 With the WTO obligations, China agreed to open up the banking sector to foreign institutions