Powering Success for Foreign Companies: an Overview of the Banking System in China

Table of Contents

the banking system in China

Welcome to this informative blog article where we delve into the reformation history, key characteristics, regulatory framework, and core structure of the banking system in China. 

Understanding the banking system in China is essential for foreign companies to access financial services, comply with regulations, manage risks, identify investment opportunities, collaborate with Chinese banks, and navigate cultural and operational differences. It empowers foreign companies to make informed decisions, mitigate risks, and maximize their success in the Chinese market.  

Reformation of the Banking System in China

The current banking system in China has evolved significantly over the years, undergoing various transformations and reforms. A major milestone came with the founding of the People’s Bank of China (PBOC) in 1948, which became the central bank responsible for currency issuance, monetary policy formulation, and banking regulation. Following the establishment of the People’s Republic of China in 1949, the banking sector underwent nationalization and centralization, consolidating major banks into state-owned commercial banks.

In the 1980s, China adopted a dual-track banking system, allowing the coexistence of planned and market-oriented systems. State-owned commercial banks continued under the planned system, while new joint-stock commercial banks embraced market-oriented practices.

To support specific sectors and government initiatives, policy banks like the China Development Bank (CDB) and the Agricultural Development Bank of China (ADBC) were established. These policy banks provided long-term financing for infrastructure projects and agriculture.

In recent years, China has experienced a surge in digital banking and fintech innovation. Mobile payment systems, online banking platforms, and fintech companies have flourished, providing convenient and advanced financial services.

3 Key Characteristics of the Banking System in China

Understanding these key characteristics of the banking system in China is crucial for foreign companies operating or planning to enter the Chinese market. It allows them to navigate the unique dynamics of state control, address potential risks associated with non-performing loans, and align their strategies with government policies and interventions. The three key characteristics are:

State Control and Influence 

The Chinese banking system is characterized by significant state control and influence. State-owned commercial banks, such as Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BOC), and Agricultural Bank of China (ABC), play a dominant role in the banking sector. The state holds controlling stakes in these banks, which ensures that government policies and objectives align with the overall banking strategy. State control also allows the government to exert influence over lending practices, credit allocation, and the overall direction of the banking system.

Non-performing Loans and Asset Quality Challenges

The Chinese banking system has faced challenges related to non-performing loans (NPLs) and asset quality. Historically, the system has accumulated a significant amount of NPLs, primarily due to excessive lending, inadequate risk management, and past economic downturns. Addressing these NPLs and improving asset quality have been ongoing priorities for the government and regulators. Reforms have been implemented to strengthen risk management practices, enhance loan classification, and establish mechanisms to dispose of NPLs.

Government Policies and Interventions

The Chinese government plays an active role in shaping the banking system through policies and interventions. Government policies often aim to guide lending priorities, promote economic growth, and support targeted sectors. Policy banks, such as the China Development Bank (CDB) and the Agricultural Development Bank of China (ADBC), are specifically established to implement government policies and provide funding for key projects. Additionally, government interventions, such as credit easing measures during economic downturns, demonstrate the government’s ability to influence the availability of credit and liquidity in the banking system.

The banking system in China

The Regulatory Framework of the Banking System in China 

The regulatory framework of the Chinese banking system involves various entities and institutions that oversee and supervise the operations of banks. The key regulatory bodies and their roles are as follows:

People’s Bank of China (PBOC)

The People’s Bank of China (PBOC) is the central bank of the People’s Republic of China, serving as the highest monetary authority in the country. It plays a critical and multi-faceted role in the Chinese banking system.

The PBOC’s key responsibilities include formulating and implementing monetary policies to maintain price stability, control inflation, and support sustainable economic growth. It sets interest rates, regulates the money supply, and manages exchange rate policies.

In terms of banking supervision and regulation, the PBOC oversees and regulates the banking sector in China. It establishes prudential regulations, sets standards for risk management, and ensures compliance with regulatory requirements. Through on-site inspections and assessments, the PBOC monitors the financial health and stability of banks operating in the country.

Collaboration with other regulatory bodies is crucial for the PBOC. It works closely with institutions like the China Banking Regulatory Commission (CBRC) to ensure compliance with regulations, promote a sound and efficient banking system, and maintain financial system stability.

China Banking Regulatory Commission (CBRC) 

The China Banking Regulatory Commission (CBRC) is the primary regulatory body responsible for overseeing and regulating the banking sector in China. Established in 2003, the CBRC operates under the guidance of the State Council. 

The CBRC formulates regulations, guidelines, and rules that cover various aspects of banking operations, including risk management, capital adequacy, liquidity, and asset quality. It grants and revokes banking licenses, conducting thorough evaluations of banks’ qualifications and capabilities. Ongoing supervision and monitoring of banks’ operations, financial health, and compliance with regulatory requirements ensure safe and compliant banking practices.

Risk management is a core focus of the CBRC, which sets prudential regulations to ensure banks maintain adequate capital buffers and manage risks effectively. The CBRC emphasizes good corporate governance practices within banks, promoting transparency, accountability, and risk management.

Other regulatory bodies

Besides the PBOC and the CBRC, several other regulatory bodies play important roles in the Chinese banking system. These include:

  • China Securities Regulatory Commission (CSRC): The CSRC regulates and supervises the securities and capital markets in China. Although primarily focused on the securities sector, its regulations and policies impact banks engaged in securities-related activities.
  • State Administration of Foreign Exchange (SAFE): SAFE is responsible for managing China’s foreign exchange reserves, overseeing foreign exchange transactions, and implementing foreign exchange policies. It ensures compliance with foreign exchange regulations for banks engaged in cross-border transactions and foreign currency operations.
  • Ministry of Finance (MOF): The MOF formulates fiscal policies, manages government revenues and expenditures, and provides financial oversight. Its role includes supervising the fiscal aspects of the banking sector, including treasury operations and government-related banking activities.
  • National Development and Reform Commission (NDRC): The NDRC is responsible for macroeconomic planning and guiding economic development policies. It plays a role in setting priorities for the banking sector, particularly in relation to infrastructure development and strategic initiatives.
The core structure of the banking system in China

The regulatory framework of the Chinese banking system, overseen by entities such as the People’s Bank of China (PBOC) and other regulatory bodies, ensures compliance with regulations and promotes stability and soundness within the industry. Within this framework, the structure of banking system in China comprises a diverse structure of institutions, including state-owned commercial banks, joint-stock commercial banks, policy banks, rural and cooperative banks, and foreign banks operating in China. These types of banks will be introduced in the following sectors.

The Structure of the Banking System in China

The banking system in China is structured with a diverse array of institutions, each serving specific roles and catering to different customer segments. The key components of the banking system in China include:

State-owned commercial banks

State-owned commercial banks are major players in the Chinese banking sector. These banks are directly controlled by the state and have a nationwide presence. They offer a wide range of banking services to individuals, businesses, and government entities. State-owned commercial banks have extensive branch networks and dominate the Chinese banking landscape. The Big Four are as follows:

  • Industrial and Commercial Bank of China (ICBC): ICBC is the largest bank in China and the world by total assets. It is a state-owned commercial bank and plays a vital role in the Chinese banking sector. ICBC offers a comprehensive range of financial services, including retail banking, corporate banking, asset management, and investment banking. With an extensive branch network and advanced digital banking platforms, ICBC serves a broad customer base and has a significant presence both domestically and internationally.
  • China Construction Bank (CCB): CCB is one of the “Big Four” state-owned commercial banks in China. It is known for its strong focus on corporate and infrastructure financing. CCB provides a wide range of banking services, including retail banking, corporate banking, wealth management, and treasury operations. It has a vast network of branches and subsidiaries, serving diverse customer segments. CCB is recognized for its robust risk management practices and commitment to supporting China’s economic development through funding major construction and infrastructure projects.
  • Bank of China (BOC): BOC is one of the oldest banks in China and is also one of the “Big Four” state-owned commercial banks. It offers a comprehensive suite of banking products and services, catering to individuals, businesses, and government entities. BOC has a global presence, with an extensive international network facilitating cross-border transactions and supporting international trade. The bank provides services such as deposit accounts, loans, trade finance, foreign exchange, and investment banking. BOC plays a crucial role in promoting China’s economic ties with the rest of the world.
  • Agricultural Bank of China (ABC): ABC is another “Big Four” state-owned commercial bank in China, specializing in agricultural and rural finance. It provides banking services to farmers, rural communities, and agricultural enterprises. ABC supports rural development initiatives, including loans for agricultural projects, rural infrastructure financing, and financial inclusion programs. The bank offers a range of services, including deposit accounts, loans, insurance, and wealth management. With its extensive rural and cooperative banking network, ABC plays a crucial role in supporting the agricultural sector and promoting rural economic growth in China.

Joint-stock commercial banks

Joint-stock commercial banks in China are publicly listed banks with a mixture of state and private ownership. Examples include China Merchants Bank, Bank of Communications, and China CITIC Bank. These banks operate under market-oriented principles and provide various financial services to customers. Joint-stock commercial banks have gained prominence in recent years, contributing to the diversification and competitiveness of the Chinese banking system.

Policy banks

Policy banks in China are established to support specific sectors and government initiatives. Notable policy banks include the China Development Bank (CDB) and the Agricultural Development Bank of China (ADBC). These banks provide long-term financing for infrastructure projects, agriculture, rural development, and other strategic sectors. Policy banks play a vital role in implementing government policies and supporting key economic projects in China.

Rural and cooperative banks

 Rural and cooperative banks primarily serve rural areas and agricultural sectors. They aim to provide financial services to farmers, agricultural enterprises, and rural communities. These banks focus on fostering financial inclusion and supporting the development of rural economies. Rural and cooperative banks play a critical role in promoting agricultural activities, rural entrepreneurship, and poverty reduction.

Foreign banks operating in China

 Foreign banks have been allowed to operate in China since the late 1970s. These banks, including HSBC, Citibank, and Standard Chartered, have a presence in major cities and provide financial services to multinational corporations, foreign investors, and Chinese companies engaged in international trade. Foreign banks in China are subject to specific regulatory requirements and restrictions but contribute to the diversification and internationalization of the Chinese banking sector.

the banking system in China

Opportunities and Challenges for Foreign Companies

Foreign companies operating in China face a range of opportunities and challenges within the banking sector. These include:

Entry barriers and regulations for foreign banks

Foreign banks entering the Chinese market encounter various entry barriers and regulatory requirements. These may include limitations on the establishment of branches, capital requirements, and compliance with Chinese banking regulations. Understanding and navigating these regulations is essential for foreign banks to establish a presence and operate effectively in China.

Collaborative opportunities with Chinese banks

Collaborating with Chinese banks can provide foreign companies with valuable support and resources. Partnering with Chinese banks can facilitate market entry, financing, and operational support. Chinese banks have extensive networks, local market knowledge, and expertise in navigating the regulatory landscape. Collaborative opportunities may include joint ventures, strategic partnerships, or leveraging banking services provided by Chinese banks.

Navigating cultural and operational differences

Operating in China involves navigating cultural and operational differences. Understanding Chinese business customs, communication styles, and decision-making processes is crucial for foreign companies. Adapting business strategies and practices to align with Chinese norms and expectations is essential for building strong relationships and successful collaborations with Chinese banks.

Foreign companies must also be mindful of language barriers, bureaucratic processes, and differing approaches to risk management. Building cross-cultural competency and fostering open communication channels are key to effectively navigating these differences.

Overall, while foreign companies face challenges in entering the Chinese banking sector, there are significant opportunities for collaboration with Chinese banks. By understanding and navigating entry barriers, leveraging collaborative opportunities, and effectively managing cultural and operational differences, foreign companies can capitalize on the growth potential of China’s banking sector and forge successful partnerships within the market.


In this blog article, we provided a comprehensive overview of the banking system in China. We began by exploring the reformation history, tracing the evolution of the system from ancient practices to modern banking institutions. We then highlighted three key characteristics of the Chinese banking system: state control and influence, non-performing loans and asset quality challenges, and government policies and interventions. These characteristics shape the operations and dynamics of the banking sector in China.

Moving on, we delved into the regulatory framework that governs the Chinese banking system. The People’s Bank of China (PBOC) serves as the central bank and plays a crucial role in formulating monetary policies, overseeing banking operations, and ensuring financial stability. We also mentioned other regulatory bodies, such as the China Banking Regulatory Commission (CBRC), which plays a vital role in supervising and regulating banks.

Next, we explored the core structure of the banking system in China. This structure comprises state-owned commercial banks, joint-stock commercial banks, policy banks, rural and cooperative banks, and foreign banks operating in China. Each type of bank serves specific roles and caters to different customer segments, contributing to the diversity and strength of the Chinese banking sector.

Throughout the article, we emphasized the importance of understanding the Chinese banking system for foreign companies and individuals. From entry barriers and regulations to collaborative opportunities with Chinese banks, navigating cultural and operational differences, and leveraging the regulatory framework, a deeper understanding of the system is essential for success in the Chinese banking sector.

By providing a comprehensive overview of the historical background, key characteristics, regulatory framework, and core structure of the banking system in China, TopFDI aimed to equip readers with valuable insights and knowledge to navigate the dynamic and ever-evolving landscape of Chinese banking.