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The PRC's Financial
System
The PRC's financial system is highly regulated and relatively underdeveloped,
but has recently begun to expand rapidly as monetary policy becomes
integral to its overall economic policy. As a result, banks are
becoming more important to the PRC's economy by providing increasingly
more finance to enterprises for investment, seeking deposits from
the public to mop up excess liquidity, and lending money to the
government.
As would be expected, the PRC's banking system is also highly regulated
with six major banks, each having specific tasks and duties. The
People's Bank of China is the largest bank in the PRC and acts as
the Treasury. It also issues currency, monitors money supply, regulates
monetary organisations and formulates monetary policy for the State
Council. The Bank of China manages foreign exchange transactions
and manages foreign exchange reserves. The China Investment Bank
distributes foreign capital from a variety of sources, and the China
International Trust and Investment Corporation (CITIC) was previously
a financial organisation that smoothed the inflow of foreign funds,
but is now a full bank, allowing to compete for foreign investment
funds with the Bank of China. The People's Construction Bank lends
funds for capital construction projects from the state budget, and
finally the Agricultural Bank of China functions as a lending and
deposit taking institution for the agricultural sector.
Financial reform in the PRC's banking sector include the introduction
of leasing and insurance, and operational boundaries are being slowly
eroded to promote competition for customers who are now permitted
to choose banks as well as hold accounts in more than one bank.
Since the inception of the open door policy, a number of international
banks have been permitted to open their doors in major cities in
the PRC. However, these are largely representative branches, with
only a few being permitted to carry out branch functions in Shanghai
and Shenzhen. Their participation in the PRC's financial system
has been very limited, but as the PRC starts to borrow more from
abroad, their role may become greater in the future.
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