Abstract
This article critically reviews the extent of regulatory capture in China's banking sector. China's banking regulation has been captured by various levels of government, as well as by the regulated banks (both Chinese and foreign). An analysis of the relationship between the principal regulator, namely the Chinese Banking Regulatory Commission, its affiliates, the central government (the Government) and local governments provides an understanding of the delicate networks that connect the principal regulator to the economic and social policies and ambitions of various levels of governments, and which result in the politicization of banking regulation in China. The author also points out that government ownership of Chinese banks, and the role of those banks in implementing fiscal policy, together with a regulatory intention to encourage foreign banks with a view to leveraging on their expertise in order to develop the Chinese banking sector, have all given rise to regulatory capture by regulated banks.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References and Notes
Mcchesney, F.S. (1987) Rent extraction and rent creation in the economic theory of regulation. Journal of Legal Study XVI (January): 101.
Ibid., p. 102.
Freixas, X. and Santomero, A.M. An Overall Perspective on Banking Regulation. Federal Reserve Bank of Philadelphia, Cambridge University Press, p. 8.
Barth, J.R., Gerard Caprio, J.R. and Levine, R. (2006) Rethinking Bank Regulation. Philadelphia: Cambridge University Press, p. 35.
Stigler, G. (1971) The theory of economic regulation. Bell Journal of Economics and Management Science 2 (1): 3.
Smith, W. (1997) Utility regulators – The independence debate. Public Policy for the Private Sector 127 (October): 1.
Maggetti, M. (2007) De facto independence after delegation: A fuzzy-set analysis. Regulation &Governance 1 (4): 271–272.
Quintyn, M. and Taylor, M.W. (2002) Regulatory and Supervisory Independence and Financial Stability. IMF Working Paper, pp. 3–4.
Ma, S.K. (2007) What can we learn from recent developments in china's public administration? Public Administration Review 67 (6): 1089.
Dougherty, S.M. and McGuckin, R.H. (2007) The effects of federalism on productivity in Chinese firms. Management and Organization Review 4 (1): 39.
Laws of People's Republic of China on Banking Regulation and Supervision2003. Section 5.
Pearson, M.M. (2007) Governing the Chinese economy: Regulatory reform in the service of the state. Public Administration Review 67 (4): 724.
10th National People's Congress Standing Committee. (2003) The bit in Chinese. Guan Yu Zhong Guo Ren Min Yin Hang Ye Jian Du Wei Yuan Hui Lu Xing Yuan You Zhong Guo Ren Min Yin Hang Lu Xing de Jian Du Guan Li Zhi Ze de Jue Ding Decision on Chinese Banking Regulatory Committee in charge of supervisory and regulatory responsibility, http://www.cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=259, accessed 16 August 2011.
Cai Jing, D.Y. and Guo Qiang, L. (2008) Di Yi Cai Jing, Interview with Long Guo Qiang. Deputy Head of Development Research Center, State Council.
Ministry of Human Resources and Social Security, (National Public Servant Recruitment System). (2010) http://bm2010.scs.gov.cn/UserControl/Student/StudentIndex.aspx, accessed 20 May 2010.
Ministry of Finance. (2010) Financial report, http://yss.mof.gov.cn/2010zhongyangyusuan/201003/t20100325_280104.html, accessed 29 May 2010.
Wu, Q. (2007) The making of a market economy in China: Transformation of government regulation of market development. European Law Journal 13 (6): 13.
CBRC. (2009) Annual Report 2008, p. 98.
Ibid., pp. 116–119.
CBRC. (2010) The bit in Chinese. Yin Hang Ye Jia Qiang 2010 Shanghai Shi Bo Hui Ji Guang Zhou Ya Yun Hui Qi Jian Xin Xi Ke Ji Feng Xiang Fang Kong Gong Zuo Information and Technology Risks for 2010 World Expo, Vol. 27, May 2011.
CBRC. What is CBRC, http://www.cbrc.gov.cn/english/info/yjhjj/index.jsp, accessed 25 July 2011.
He, W.P. (2012) More detailed discussion regarding policy driven regulatory initiatives see Banking regulation in China what, why, and how. Journal of Financial Regulation and Compliance 20 (4), forthcoming.
International Monetary Fund. (2011) People's Republic of China: Financial System Stability Assessment. Washington DC: International Monetary Fund, p. 59.
Sheehan, P. and Grewal, B. (2008) Strategic change and the limits of central authority in China. Public Finance and Management 8 (4): 587.
Dougherty, S.M. and McGuckin, R.H. (2007) The effects of federalism on productivity in Chinese firms. Management and Organization Review 4 (1): 57.
CBRC. (2008) Supporting the development of county economy and small enterprises, http://www.cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=2008032543319DB3E8EE6B06FF1DA9F2B1F0F400, accessed 25 May 2011.
Shan Xi Government. (2009) The bit in Chinese. Sheng Jin Rong Ban Shan Xi Yin Jian Ju Guan Yu Jiong Rong Zhi Chi Xian Yu Jing Ji Fa Zhan Yi Jian de Tong Zhi Finance Department and CBRC Shan Xi Bureau Regarding Supporting the Development of County Economy. Shan Xi Government, http://www.shaanxi.gov.cn/0/104/6722.htm, accessed 26 May 2011.
Yeung, H.W.C. (2000) Local politics and Foreign ventures in China's transitional economy: The political economy of Singaporean investments in China. Political Geography 19 (7): 839.
Kang, L.M. (2009) Zhong Guo Yin Hang Ye Jian Guan de Xuan Ze Choice of China's Banking Regulation. Speech delivered at the Asian Bankers Forum, Beijing, http://www.cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=20090518F31C2974582214BEFFB933B9965B1C00, accessed 26 May 2011.
Chien, S.-S. (2010) Economic freedom and political control in post-mao China: A perspective of upward accountability and asymmetric decentralization. Asian Journal of Political Science 18 (1): 71.
Shujie Yao, Z.H. and Feng, G. (2008) Ownership reform, foreign competition and efficiency of Chinese commercial banks: A non-parametric approach. The World Economy 38: 1310.
Chao, G. (2011) Di Fang Zheng Fu Rong Zi Ping Tai de Feng Xian Feng Xi analysis of risks associated with local government funding platform. Xian Dai Yin Xiao Modern Marketing 5: 100.
Jun, T.Y. (2011) Cai Zheng Feng Quan yu Di Fang Zheng Fu Rong Zi Ping Tai de Fa Zhan separation of fiscal power and the development of local government funding platform. Shanghai Jin Rong Shanghai Finance (3): 25.
CBRC. (2011) Annual Report 2010, p. 24.
Hong, W.X. (2011) Di Fang Rong Zi Ping Tai Cun Zai de Wen Ti Yu Dui Ce local government funding platform's problems and solutions. Technology and Market 18 (1): 96.
Bin, G.H. (2010) Di Fang Zheng Fu Rong Zi Ping Tai Dai Kuan Feng Xian Ji Qi Fang Fan Hua Jie Cuo Shi Qian Tan solving problems in relation to local government funding platform. Jin Rong Zong Heng Finance (8): 30.
CBRC. (2011) Annual Report 2010, p. 112.
Ibid., p. 47.
Ibid., pp. 128, 129.
Chien, S.-S. (2010) Economic freedom and political control in post-mao China: A perspective of upward accountability and asymmetric decentralization. Asian Journal of Political Science 18 (1): 70.
CBRC. (2011) Annual Report 2010, p. 16.
CBRC. (2006) Regulations of the People's Republic of China on Administration of Foreign-funded Banks. Section 14, Beijing.
International Monetary Fund. (2011) People's Republic of China: Financial System Stability Assessment. Washington DC: International Monetary Fund, p. 38.
For detailed discussion regarding Financial System Stability Assessment see Singh, D. (2008) The role of the IMF and World Bank in financial sector reform and compliance. In: W. Shan, P. Simons and D. Singh (eds.) Redefining Sovereignty in International Economic Law. New York: Hart Publishing.
Wortzel, L.M. (2006) China's financial system and monetary policies: The impact on U.S. exchange rates, capital markets, and interests rates, http://www.uscc.gov/hearings/2006hearings/transcripts/aug_22/06_10_22_trans.pdf, accessed 12 September 2011, p. 22.
Min, Y.Q. The bit in Chinese. Shun Ying Fu Za Hong Guan Huan Jing Qiang Hua Nei Bu Feng Xian Guan Kong Cu Jing Ge Xiang Ye Wu chi Xu Wen Ding Fa Zhan. Macro-economy, internal risk control, business development. (Speech delivered at the Meeting of Chief Officers of Foreign banks in Shanghai, Shanghai, 30 July 2010).
Jiang, X.D. (2010) Jiang Xi Zheng Fu Rong Zi Ping Tai Shou Xian Wai Zi Yin Hang foreign banks at Jiang Xi. Local government funding platform, http://www.jxnews.com.cn/xxrb/system/2010/12/07/011536328.shtml, accessed 21 June 2011.
The Economist. (2011) The limits of central authority, http://www.economist.com/blogs/freeexchange/2011/06/chinas-economy-0, accessed 25 July 2011.
Greenspan, A. (2007) The Age of Turbulence, New York: The Penguin Press, p. 524.
Jiang, C., Yao, S.J., Feng, G.F. and Willenbockel, D. (2007) WTO chanllenges and efficiency of Chinese banks. Applied Economics 39 (5): 641.
Dougherty, S.M. and McGuckin, R.H. (2007) The effects of federalism on productivity in Chinese firms. Management and Organization Review 4 (1): 40.
For example, China's Construction Bank (CCB) is one of four state-owned banks. 57 per cent of issued shares in the CCB is primarily held by Huijin, an incorporated central government management agency, and the shareholding is managed by SASACF. On 1 January 2009, the state share was 74 per cent as at 1st January 2007. See China Construction Bank, Annual Report 2009, p. 84.
The central government and the local governments have equity stakes in these banks. For example, the Shanghai State-owned Assets Commission holds a 28 per cent stake in Shanghai Pudong Development bank, remaining its biggest shareholder. Shanghai Pudong Development Bank Co. Ltd, Annual Report 2007. This continued up to 2009. See Shanghai Pudong Development Bank Co. Ltd, Annual Report 2009, p. 20. The Shanghai government owns more than 20.2 per cent of Shanghai Rural Commercial Bank and is its largest shareholder. see Shanghai Rural Commercial Bank, Annual Report 2007, pp. 18, 19.
Edwards, G. and Waverman, L. (2006) The effects of public ownership and regulatory independence on regulatory outcomes. Journal of Regulatory Economics 29 (1): 51.
For example, Li Li Hui, before he became Chairman of the Bank of China, was the deputy head of He Nan province. Currently, as Chairman of the Bank of China, politically he holds a position equivalent to a head of a administrative province in China. see The Bank of China. Yin Hang Ling Dao leaders in the Bank, http://www.boc.cn/aboutboc/, accessed 1 June 2011.
Qiu Tao, Z. A Vice-Chairman of Everbright Bank, was the Deputy Division Director of the State Planning Commission, Everbright International. Directors & Senior Management, http://www.ebchinaintl.com/e/about_bod.php, accessed 1 June 2011, and Lu Guang Yu, the Director of Bank of Ningbo, served as the deputy head of financial department of Ningbo government and the assistant to the head of State-Owned Asset Commission in Ningbo, see Bank of Ningbo.57
Bank of Ningbo. (2011) 2010 Nian Nian Du Bao Gao Annual Report 2010, p. 13.
CBRC. Leaders in the CBRC, http://www.cbrc.gov.cn/chinese/info/yjhjj/index_ld_lmk.jsp, accessed 23 May 2011. Also Zhu Xiao Hua, served in key positions in People's Bank of China and State Administration of Foreign Exchange before he took on the leadership of the Everbright Bank see Xinhua.59
Xinhua. (2002) Verdict of Zhu, http://news.xinhuanet.com/newscenter/2002-11/01/content_615636.htm, accessed 18 May 2011.
Dal Bo, E. (2006) Regulatory capture: A review. Oxford Review of Economic Policy 22 (3): 214.
Feinberg, J. (1986) Harm to Self, GBR, Oxford: Oxford University Press, p. 8.
Dworkin, G. (1971) Paternalism. In: R. Wasserstrom (ed.) Morality and the Law, Michigan: The University of Michigan, p. 120.
Wall, S. (2009) Self-ownership and paternalism. The Journal of Political Philosophy 17 (4): 403.
Fries, S. and Taci, A. (2002) Banking reform and development in transition economies, European Bank for Reconstruction and Development, p. 1.
CBRC. (2010) Annual Report 2009, p. 17.
CBRC. (2011) Annual Report 2010, p. 87.
Standard Chartered. (2011) Standard Chartered launches roadshow to promote RMB products and services, http://www.standardchartered.com.hk/news/2011/press_20110117.pdf, accessed 17 January 2011.
CBRC. (2010) Annual Report 2009, p. 73.
KPMG. (2006) Great Expectations New Guidance for China's Banking Sector. Hong Kong: KPMG, p. 3.
The SASAC. (2007) Rui Yin Jiang Zai Jing Zhu Ce Fa Ren Yin Hang UBS local incorporated in Beijing, http://ma.sasac.gov.cn/bgrz/gqss/tzyhdt/2007/1010/0710101766244895EB5E97DABKBGHC.asp, accessed 23 May 2011.
Li Rui Huan, a member of National People's Congress Standing Committee, and has been posted to various important positions at the central government level, see The Central People's Government of the PRC, Li Rui Huan, http://www.gov.cn/gjjg/2008-03/14/content_920440.htm, accessed 7 July 2011.
Standard Charted. Standard Chartered Appoints Chairperson for Greater China and New China CEO, http://www.standardchartered.com/media-centre/press-releases/2009/documents/20090721_2/index.html, accessed 1 June 2011.
PRICEWATERHOUSECOOPERS. (2010) Foreign Banks in China. Hong Kong: Oxford, p. 6.
Helm, D. (2006) Regulatory reform, capture, and the regulatory burden. Oxford Review of Economic Policy 22 (2): 169.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Ping, H. Regulatory capture in China's banking sector. J Bank Regul 14, 80–90 (2013). https://doi.org/10.1057/jbr.2012.9
Received:
Revised:
Published:
Issue Date:
DOI: https://doi.org/10.1057/jbr.2012.9