Reform and Development of Chinese Financial System

1
Reform and Development of Chinese Financial System
Zhang Jianhua Deputy General Manager of FIs.
Dept. BOC Head Office Co-Head of Preparatory Team
for BOC Brasil Project Porto Alegre 20th May 2008
2
Contents
Overview
A Universal Bank
Bnk of China (Brasil) S/A
3
Overview of Chinas Financial System

• We will focus on
• The banking system
• And will also touch
• financial markets

4
Part ? Reforms in the Chinese Banking System

• Phase One (1978-1994)
• In 1978, the People's Bank of China (PBC) a
  central bank, was created and became independent
  of the Ministry of Finance resulting in more
  effective conduct of monetary policy.
• A two-tier banking system was created in which
  the PBC emerged
• as the central bank, while the Bank of China
  (BOC), the China Construction
• Bank (CCB), the Agricultural Bank of China (ABC)
  and the Industrial and
• Commercial Bank of China (ICBC) emerged as the
  specialised banks.
• In 1984, the PBC was specifically designated as
  the central bank of China.

5
Reforms in the Chinese Banking system

• Other bank and Non-bank financial institutions
• Regional banks (partially owned by local
  governments)
• city commercial banks (with business restricted
  to home city)
• Cooperatives banks (Rural Credit Corp.,similar to
  credit unions in the U.S. and Urban Credit Corp.)
• Non-bank financial intermediaries (such as the
  Trust and Investment Corporations finance
  companies, financial leasing companies, auto
  financing companies)

6
Reforms in the Chinese Banking system

• Phase Two (1994-1998)
• three policy banks were set up
• the China Development Bank,
• the Agricultural Development Bank of
  China and
• the Export-Import Bank of China
• To undertake the policy driven financing earlier
  assigned to
• specialised banks.

7
Reforms in the Chinese Banking system

• Phase Three (1998 onwards)
• reform initiatives (as part of its WTO accession
  )
• 13 cities have been opened for foreign banks
  to conduct
• renminbi business.
• 100 eligible foreign banks were permitted to
  conduct renminbi
• business and
• 55 of them were allowed to provide renminbi
  services to the Chinese
• enterprises.

8
Reforms in the Chinese Banking System

• Allowed to provide 12 categories of services
  in China.
• The permitted equity holding in Chinese
  financial institutions by
• a single foreign investor has been
  raised from 15 per cent to 20
• per cent, while the maximum foreign
  equity holding remains at 25
• per cent.

9
Reforms in the Chinese Banking System

• Financial Supervisory Bodies were set up
• The China Securities Regulatory Commission (CSRC
  in end of 1992)
• The China Insurance Regulatory Commission (CIRC
  in 1998)
• The China Banking Regulatory Commission (CBRC in
  2003)
• A joint mechanism has been developed among the
  CBRC, the CSRC
• and the CIRC for co-operation among themselves.
• .

10
Reforms in the Chinese Banking System

• corporate restructuring into shareholding banks
• Two Pilot banks
• The Bank of China and
• the China Construction Bank
• Followed by Industrial Commercial Bank of China
• The government Capital injection from the
  official foreign exchange
• reserves and non-performing loan writing-off
  aiming at building good
• corporate governance.

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Banking Sector in China
China Banking Regulatory Commission
Policy Banks (3)
Joint stock Commercial banks(10)
State-Controlled Commercial Banks(4)
Foreign Banks (225)
Regional Banks
Postal Saving Banks
City commercial banks
Co- operated banks
Non-bank financial companies
Industrial and Commercial bank of china
Bank Of china
China Construction bank
agricultural bank of china

• The assets of the banking sector account for
  around 95 per cent of the total assets of all
  financial institutions in China.
• 62 per cent of the fixed-asset investment in
  China are funded by banking Sector.
• The big four SOE banks are the major players in
  the Chinese financial market, with their assets
  accounting for 52.7 per cent of the total bank
  assets in China.

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Part ?Financial Markets

• Two domestic stock exchanges
• Shanghai Stock Exchange Market (SHSE)
• Shengzhen Stock Exchange Market
  (SZSE)
• At the end of 2005, the combined total market
  capitalization of the SHSE and SZSE
• ranked 15th among the largest stock exchanges
  in the world
• Bond Markets
• The government bond ,policy financial bonds ,
  corporate bond
• Private Equity/Venture Capital
• In recent years the performance of the stock
  markets has been volatile.
• This is somewhat surprising given the robust
  performance of the real
• economy.

13
Part ? New Environment for the Development of
Chinas Financial Sector

• In the mid-to-late stage of industrialization,
  financial institutions no longer need to fully
  perform policy financial functions

Constitution of GDP
14

New Environment for the Development of Chinas
Financial Sector

• China's financial sector has entirely
  liberalized, financial institutions will face
  competitions from global extent

15
Part ?New Trend in the Development of Chinas
Financial Sector

• On the macro side
• interest rate and exchange rate liberalization
  has started

RMB/US Exchange Rate since Exchange rate
Mechanism Reforms
16
New Trend in the Development of Chinas Financial
Sector

• On the micro side
• The trend of transformation from divided
  operation to integrated operation has emerged.
  i.e.

• CITIC Group established in 2002. It has now
  become an integrated financial holding group
  which is involved in banking, insurance,
  securities, fund and trust businesses. It
  comprises CITIC Industrial Bank, CITIC
  Securities, CITIC Funds, CITIC Trust Investment
  and Citic-Prudential Life Insurance Company.
• BOC GroupBOC established BOCI (investment bank)
  and BOC insurance in HK to diversify its
  financial service business and to expand the
  business from HK to mainland
• Ping An Insurance Group Ping An Insurance has
  also developed from a pure insurance company to a
  integrated financial group which offers various
  financial services including insurance,
  securities and trust.

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Outlook of Chinas Financial Sector

• The overall restructuring and potential listing
  of Agricultural Bank, and the commercialization
  reform of China Development Bank indicate that
  the policy functions of the state-controlled
  banks will be reduced, with commercial features
  being enhanced
• Marked by the preparation of Shanghai Financial
  Futures Exchange, the rapid growth of fixed
  income product will promote both transformation
  of financial sector from indirect financing to
  direct financing and the interest rate
  liberalization.
• Take approved RMB bonds issuing in HK market as
  sign, the convertibility of RMB and
  liberalization of exchange rate mechanism have
  been further improved
• Marked by the approval of fund management company
  established by commercial banks, financial
  institutions have started engaging in cross
  selling and integrated operation.

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Conclusions
Chinas economy is experiencing the fastest
growth in the world, and is expected to maintain
a relatively high growth in a considerable long
period. With further implementation of financial
sector reforms and liberalization of the sector,
Chinas financial sector has the potential to
achieve the fastest growth in the global
context.
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Bank of China Global Services
May 2008
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Contents
Overview
A Universal Bank
Bnk of China (Brasil) S/A
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International Bank with Longest History in China
Became one of the Big Four banks in China
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Pioneer of Innovation in the Banking Sector in
China

• 1929 the first Chinese bank to open overseas
  branches
• 1979 the first bank in China to provide export
  sellers credit
• 1984 The first Chinese bank to issue bonds
  abroad
• 1986 BOC launched the first credit card service
  in China
• 1991 BOC introduced the first telephone banking
  service in China
• 1994 BOC became the unique Chinese bank to issue
  notes in Hong Kong and Macao.

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Global Network
An extensive network11,608 branches and
subsidiaries worldwide
The first bank in China present in Asia, Europe,
Africa, Oceania, North America and South America
649 branches and Subsidiaries in 27 foreign
countries and regions including HKSAR and Macau
SAR
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Credit Ratings

• High credit ratings among the Chinese banks

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Awards

• Included in the Fortune Global 500 for 15
  consecutive years
• Ranked 11th among the "Top 1000 World Banks" by
  the Banker in 2005
• Awarded the "Best at Commercial Banking -- China"
  by Euromoney magazine for 2005
• Awarded "Best Local Bank in China " by the Asset
  for 3 consecutive years
• The Global Finance magazine of the US rated Bank
  of China the Best Trade Finance Bank in China,
  and also the Best Forex Bank in China

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Contents
Overview
A Universal Bank
Bank of China (Brasil) S/A
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New changes-a successful IPO in stock markets

• Bank of China listed on Hong Kong Stock Exchange
  on June 1st, 2006, issuing 29,403,878,000 common
  stocks (H share) and financing about USD 11.2
  billion. It has been the fourth largest IPO in
  the history.
• Bank of China listed also on Shanghai Stock
  Exchange on July 5th, 2006, issuing 6,493,506,000
  common stocks (A share) and financing about USD
  2.5 billion. It has been the largest public
  offering in the Chinese stock market.

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Development Strategy Objectives

• In 10 to 15 years, to become much stronger in
  financial strength, remarkably higher in
  profitability,to become a flagship among domestic
  commercial banks, and to match big international
  leading banks

Bright future
The Reform Procedure of Bank of China

• Strengthen overall competitiveness, better
  effects of scale, and group synergy.

Quick Growth

• IPO in 2006 June and July, providing a better
  capital structure

IPO As a Whole
Mid term
Long term
Short term
Major objectives
Listing as a whole
Group Competitiveness
1st Class International Bank
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Universal Banking Strategy
Bank of China
Commercial Banking
Investment Banking
Insurance
Life, property and casualty insurance.
Core Business of Investment Banking Public equity
issuance?MA Advisory, etc.
Corporate Banking Credit products, corporate
institutional clearing, settlement, fund custody,
treasury and global market services financing
products and services, financial solutions,
innovative and customized financial services
tailored to the needs of clients.
Brokerage and Institutional Sales Diversified
securitization, and other services to
institutional investors.
Financial Institutions Business International
settlement, treasury and financial markets,
deposits, domestic and foreign currency clearing,
fund custody, wealth management, banc assurance,
securities and futures settlement services, etc..
Fixed Income Syndicated lending, bond
underwriting, etc..
Fund Management Unit trust, etc.
Retail Banking Savings Deposit?Consumer
Loan?Credit Card etc..
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Commercial Banking
Corporate Banking Business Bank of China
maintains its leading position in China for
foreign currency business and we also enjoy
32
Commercial Banking
Market leader in
international trade settlement business in China.

As of Dec 31, 2005
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Commercial Banking

• Retail Banking Business
• Bank of China provides a wide variety of personal
  financing services including
• - Savings Deposit Accounts
• - Mortgage loans, car finance, personal
  consumer lending, etc.
• - Credit Cards and Debit Cards
• - Foreign Exchange and wealth management,
  etc.
• BOC is the largest domestic issuer of both
  renminbi and international credit cards with the
  largest merchant network in China.

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Investment Banking

• China Development Finance (HK) established 1979
• BOCI established 1998, consolidating all
  investment banking businesses of the BOC Group
  under one roof
• Operations in Hong Kong, London, Singapore,
  Beijing and Shanghai
• One of the leading players in Hong Kongs capital
  markets
• First international investment bank to enter the
  domestic A-share market in 2002

An integrated investment bank
Research
Corporate Finance
Sales and Trading
Asset Management
Fixed Income
Derivatives
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BOCI Chinas 1st InternationalInvestment Bank

• Bank of China International (BOCI) has the
  strongest and most professional team of
  investment bankers, it also boasts of the biggest
  international distributions network, and has the
  biggest amount of assets under management among
  the domestic financial institutions.
• Outstanding Performance
• - in 2003Financemagazine awarded BOCI the
  Best Brokerage House in China and Hong Kong
• - in 2004, BOCI was awarded by Emerging
  Marketas the Best Investment Bank in North
  Asia
• - Asia Moneyawarded BOCI awards for the Best
  Brokerage house in Greater China for 14 years
  consecutively

36
Insurance Business Development

• BOC Insurance Ltd. was incorporated in Hong Kong,
  major focus being property insurance
• In 2001, BOC Insurance established its Shenzhen
  branch, marking the beginning of its development
  in Mainland Chinas insurance market
• In September 2004, with the approval of China
  Insurance Regulatory Commission,its Shenzhen
  branch was reorganized into its fully-owned
  subsidiary.

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Contents
Overview
A Universal Bank
Bank of China (Brasil) S/A
38
Business Scope for Bank of China,( Brasil) S/A

• Targeted Customers
• Chinese Multinational Companies operating in
  Brazil
• Chinese Companies are engaging in business with
  Brazilian counter-partners or vise versa
• Overseas Chinese in Brazil
• Business Scope (whole sale banking)
• Mainly two business areas
• Trade-related finance and services
• Short-term working capital loan and
  syndicated loan

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Contact Details At Present

• Contact Person
• Mr Zhang Jianhua Mobile in Sao Paulo 8776
  3892
• Email address
  zhjh_at_bank-of-china.com
• Mr. Xiaoqi Email address
  xiaoqi_at_bank-of-china.com
• BOC Rep. Office Tel.[phone] Fax. (11)
  3549 9966
• New Office Address Bank of China (Brasil) S/A
  
• (The
  Santa Catarina Building )
• Av.
  Paulista 287 - 4 Andar
• SAO Paulo -
  Brasil   Zip Code 0311-000

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Q A

• Thank you
• very much!