2026‐03‐24
1
China’s Financial System
Modern developments
Banking and Finance Structure
•The government apparatus
•MOF, PBoC, SAFE, sovereign wealth funds (Central Huijin Investment; China Investment Corp)
•Regulatory apparatus
•CSRC, CBIRC, NFRA, PBoC
•Policy banks
•Exim Bank, Agricultural Development Bank, China Development Bank
•Major State-owned banks
•ICBC, BoC, ABC, BOCOM, Postal Savings Bank, China Merchants Group, Everbright Group,
Shanghai Pudong Development Bank
•Other banks
•City-/village-level banks
•China Minsheng Bank (private)
•Insurance companies
•Major State-owned: China Life; People’s Insurance Company of China; China Taiping Insurance;
China Pacific Insurance; New China Life; China Re
•Major private: Anbang (now defunct); Ping An (debatable if State-owned or private); Minsheng
Life; Huaxia Life (taken over by government in July 2020); Taikang Life
Stock Exchanges and Indexes
•Shanghai Stock Exchange, Shenzhen Stock Exchange
•Main two bourses; primarily for blue chip companies
•Shanghai bourse third largest in the world by market cap; Asia’s largest
•Shenzhen ninth largest in the world by market cap
•Beijing Stock Exchange
•New – September 2021
•Formerly the National Equities Exchange and Quotations (NEEQ) – an OTC exchange for small
cap companies and firms not listed in Shanghai or Shenzhen
•Other commodities and derivatives exchanges
•Dalian Commodity Exchange; Shanghai Futures Exchange; China Financial Futures Exchange;
Zhengzhou Commodity Exchange; Shanghai International Energy Exchange;
•Main indexes
•SSE Composite
•SZSE Composite
•CSI 300 – top 300 stocks listed on the Shanghai and Shenzhen bourses
•
•
Features of the Mainland Financial Market
•The PBoC’s tool box
•Uses a variety of different policy instruments to release and pull liquidity from the market
•Regulatory environment
•High frequency trading is basically not allowed
•Capital controls
1
2
3
4
2
3
4
2026‐03‐24
2
•High frequency trading is basically not allowed
•Capital controls
•Licensing for foreign investors
•Up and down limit triggers
•The “restricted” list
•High collateral requirements – major driver of shadow banking
•Often described as “deep but narrow”
•High liquidity, but lacks diversity in terms of derivatives
•Government does not want widespread access to derivatives because of the inherent risks
involved (see: 2008 financial crisis)
•The “National Team”
•Major State investors will buy into the market in the event of a bear run
•Reason: Mainland stock market is mostly retail investors (they drive 80-90% of daily trading
volume); government cannot have people losing their entire life savings
•
•
•
Role of Shadow Banking
•Shadow banking is any type of debt/credit creation outside the realms of traditional
banking/finance
•Unregulated and nearly impossible to track
•Local government financing vehicles are a major culprit
•Risky because it creates invisible leverage inside the economy (again, think of 2008 with the
credit default swaps and CDOs)
•Initially rose because entrepreneurs and firms did not have enough collateral and therefore could
not finance from traditional channels
•Then it was adopted by real estate companies seeking to expand rapidly – now they are heavily
indebted and overleveraged
•Minsheng Bank was established originally as a way for entrepreneurs to access capital
•Government has been on a de-leveraging campaign for the past decade; limited success – slows
down economic growth
Role of Private Equity and Venture Capital
•PE and VC largely a post-2000 phenomenon
•They mostly invest in line policy directives of the Central government
•Many SOEs/State-owned banks/local governments have investment arms; many private ones are
minority State-owned
•A lot of foreign firms have a presence
•Helped drive Chinese tech
•International investments
•Major spree was in the early to mid-2010s; slowed down a lot in recent years due to geopolitical
issues and anti-corruption
•Targets are usually real estate and tech
Role of Hong Kong and Macao
•Hong Kong is the main offshore financing center
•Role as intermediary for Mainland and international markets
•City’s economy geared towards servicing finance
4
5
6
7
5
6
7
2026‐03‐24
3
•Role as intermediary for Mainland and international markets
•City’s economy geared towards servicing finance
•British legal system and Western standards for banking and finance
•Recently emerging as crypto hub
•Own monetary and fiscal policies
•Monetary Authority of Hong Kong sets the interest rate; follows the US Fed
•Fixed exchange rate against USD
•Hong Kong Stock Exchange
•Hang Seng Index
•Dual-listed companies
•Macao is just gambling and money laundering
•Only legal place in China to gamble, though Hong Kong allows for gambling on horse racing
and other sports betting
•Economy is entirely reliant on tourism and gambling
•Attempts to build a stock exchange were unsuccessful – no demand
•
Q&A
7
88
1
/
3
100%
