A series of workout approaches have been introduced

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Unformatted text preview: proaches have been introduced including debt-equity swap, discounted payoff, loan pool sale, property auction and securitization. The purpose of this paper is to provide a comprehensive and current analysis of the causes, amount, and solutions as well as unsolved problems of the NPL issue in China. The first part of this paper focuses on the background issues including the evolution of the banking system and the causes, amount and special characters of China's NPL issue, while the second part focuses on the solutions taken and their effectiveness as well as obstacles ahead. CHAPTER TWO: EVOLUTION OF CHINA'S BANKING SYSTEM Pre-Reform Period Before 1978, China had a centrally planned economy with a monobank system. The People's Bank of China simultaneously served as the central bank and the sole commercial bank. As China heavily relied on budgetary financing during that period, the Ministry of Finance was responsible for allocating investment and operating capital to SOEs. The People's Bank was mostly an intermediary for passing government budgetary funds to SOEs. Reform Period: 1978 to 1996 - Transition of China's Banking System From 1978 to 1996, China's economic reform gradually gained momentum. The nation has started to embrace the market economy, utilizing the demand and supply relationship to allocate resources among various economic sectors. During this period, the banking system also experienced tremendous changes. A specialized commercial banking system was set up. The Agricultural Bank of China (ABC), which focuses on deposit and lending activities in rural areas, was reestablished in February 1979 as a separate bank. A month later, the Bank of China (BOC) was separated from the People's Bank as an independent new bank, in charge of foreign exchange related business. In October 1979, the China Construction Bank (CCB) was restructured to finance large projects, such as infrastruture, transportation, energy, etc. The People's Bank of China was redefined in 1983 as the central bank, responsible for issuing currency, managing credit, setting interest rates and supervising financial institutions and foreign exchange business. The vast branch network of the People's Bank was reorganized to form the Industrial and Commercial Bank of China (ICBC) to support state-owned commercial and industrial enterprises. From 1983 to 1993, China had established a quasi-monobank system with the two-tier lending structure in which the central bank tightly controlled credit allocation of the four specialized state-owned banks (SOBs) through the credit plan. The credit plan was formulated annually through repeated negotiations between the central bank and various ministries as well as different levels of government. A relending scheme was also set up between the central bank and the four SOBs to facilitate the implementation of credit plan through redistribution of funds between banks and regions. The SOBs were required to support government objectives such as funding priority sectors and underwriting loss-making state-own enterprises (SOEs). Banks also extended loans at...
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This document was uploaded on 03/12/2014.

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