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Jan 21 2014 Lecture Notes.doc

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Political Science
Nelson Wiseman

Jan 21 2014 JPA 331 Equitized Commercial Banks (operate at the national level) Wholly State-Owned Policy Banks Local Banks Informal Finance/Shadowing Banking State owned comm. - Banks these banks are equitized. Majority of its shares are non-tradable, held by central bank of China (meaning 50 % owned by government due to reforms in the 90’s half given to non-govt entities). This raises questions about the degree of government control - The results of making them independent of the government: loan allocation still very much controlled by govt Banks: - Undercover development bank of China supports agriculture - China export import bank financial services for export and imports such as technology - Policy banks that issues loans and aids to other countries (ie. Africa) to fulfill state objectives (Get certain countries to switch allegiance from Taiwan to Mainland China) - Ultimately financed by Chinese government ^ - Local banks = CB commercial banks (largest) City commercial banks struggled to compete with larger banks because they are backed up by local banks. Due to past ties with govt they benefit from being chosen by govt to manage pension plans etc. - The next level down is village and township banks, rural commercial banks, rural/cooperative banks, rural credit cooperatives banks - Emphasize of regional location and control of these types of banks because when there is a major default, the area of control of the bank determines the scale of the problem, and how the government can fix it. (Less politically risky for local banks rather than commercial banks) Market Share of Types of Banks in China - We are most interested in the equitized banks because they account for the largest percentage of assets in China, most social and political implications. - State owned commercial banks had a lot of bad loans as a result of SOE Reform (SOE owed money to State owned banks) - 1999 Banking system terrible. Loans led to state owned enterprises. State owned banks were bankrupt but because they are state owned, govt wouldn’t let them get bankcrupt - Therefore 1.4 trillion Yuan were transferred to asset management companies (AMC). - The 4 asset management companies were there to service the bank of China. They are also owned by ministry of finance - Since the banks are also owned by govt, and amc owned by the govt, it is just a matter of transferring money from one pocket to another - AMC was to erase as much debt as possible. It is not the banks specialty to collect debt unlike AMC (specialized) that is why all the bad debt was transferred to AMC - In order to raise additional capital, AMC issues bonds in 2000 and these bonds were bought by the banks - The major banks buy these bonds and now they own part of the assets and shares in AMC - By 2008 Chinese gov’t efforts to improve finance situation of major banks had positive effects. - The problem of unresolved loans remains an issue with the banks however. Today the banks are facing another round of bad debt as a result of fiscal stimulus Why banks are so important in China more so than other countries? - The alternative ways of savings, what is available for Chinese depositors?
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