Westlaw UK Delivery Summary

Request made by :

IP ACCESS

SHIBBOLETH

Request made on:

Thursday, 04 April, 2013 at 18:25

BST

Client ID:

ukfederation

Content Type:

uk-journals-all;ukca

Title :

Banking regulation in China: what,

why, and how?

Delivery selection:

Current Document

Number of documents delivered:

Sweet & Maxwell is part of Thomson Reuters. 2013 Thomson Reuters

(Professional) UK Limited

Page2

Journal of Financial Regulation and Compliance

2012

Banking regulation in China: what, why, and how?

Wei Ping He
Subject: Banking and finance. Other related subjects: Financial regulation
Keywords: Banking supervision; China; Foreign banks; Regulatory bodies

*J.F.R. & C. 367 Abstract

Purpose - The purpose of this paper is to provide an overview of China's contemporary
banking regulatory system, with particular focus on regulatory control of foreign banks
trading in China. The paper addresses three aspects of Chinese banking regulation: what
does China regulate; why does China regulate; and how does China regulate. Much of
the discussion is concerned with China's regulatory agencies particularly with the role of
the CBRC as the principal regulator in China's banking sector.
Design/methodology/approach - In the first instance the paper presents an overview
of banking regulatory models gained from a review of theoretical literature in the area.
Then through a wide ranging review of Chinese publications, both academic and official,
the paper seeks to relate the course of regulatory reform in China, both in terms of
compliance with orthodox regulatory theory, and the unique regulatory requirements of
the Chinese banking system.
Findings - The paper recognises that China has embraced the need for banking
regulation with the establishment of an institutional structure that is responsive to both
banking supervision and government policy. Within that structure the role of the CBRC,
the pervasive manner in which that agency operates, and the content of its regulatory
output have been identified and critically reviewed.
Originality/value - In its review of the modernization of China's banking regulatory
system, the paper achieves originality from the author's research into, and critical
reflections on Chinese generated literature, both institutional and academic, which is
then communicated in a manner that will be understood by readers familiar with Western
banking regulatory theory.
Keywords Banking regulation, Banking regulation in China, Banking, China
Paper type Research paper

I. Introduction
In 2002, the 16th Chinese Communist Party National Meeting called for reform in the
financial sector (Zemin, 2002). Privately owned enterprises were recognized as an
essential component of the financial market. This policy statement embraced active
promotion of private ownership in China's banking sector. The role of the government,
from being a dominant force in the market, was to be transformed into being a facilitator
of the market economy. This transformation was accompanied by other initiatives
including encouraging foreign banks to take minority stakes in historically state-owned
banks.
China's banking sector has thus embarked on a reformatory journey since 2003. This
article commences with the establishment of the Chinese Banking Regulatory
Commission (CBRC) in 2003. That is the point from which the modernization of Chinese
banking regulation begins. It is the point at which China consolidated its regulatory
institutional structure by developing specialised regulators. Following this, a
comprehensive set of regulatory initiatives and a unique regulatory approach was
developed.
The purpose of the paper is to provide an overview of China's contemporary banking
regulatory system, with particular focus on regulatory control of foreign *J.F.R. & C.

Page3

368 banks trading in China. The paper addresses three aspects of Chinese banking
regulation: what does China regulate; why does China regulate; and how does China
regulate. These propositions wherever possible will be related to regulatory measures in
the areas of entry and operations of foreign banks in China. Much of the discussion will
be concerned with China's regulatory authorities and in that regard is primarily
concerned with the role of the CBRC as the principal regulator in China's banking sector.
The paper seeks to highlight the significant role that the CBRC plays in China's
regulatory discourse, and consequently the construction of the banking regulatory
landscape in China. From here, readers will be in a position to form views as to the
nature of China's banking regulatory system and as to some unique regulatory features
that may not be well understood in foreign jurisdictions.

II. What does China regulate?

When reviewing China's regulatory institutional structure, a starting point is the
formation of the CBRC. With a view to creating specialised regulatory bodies, in April
2003, the 10th National People's Congress Standing Committee approved the proposal
by the State Council that the CBRC should replace the People's Bank of China (PBoC) as
the principal supervisory and regulatory body within the banking sector. The CBRC was
to be accountable to the State Council. The PBoC's role was reduced to the supervision
of monetary policy1 .
By separating banking regulatory supervision and monetary policy, and creating the
CBRC, China took a significant step toward pursuing a better and stronger banking
regulatory framework. The CBRC operates pursuant to an express statutory grant of the
National People's Congress. The main responsibility of the CBRC was for prudential
regulation and protecting depositors by reducing banking risk2 . CBRC provincial offices
took over the regulatory role previously held by provincial branches of PBoC (Wang,
2003). Therefore, as it was with PBoC, the regulatory structure within the CBRC took on
the provincial administrative model employed by the Chinese government in its general
administration. It is interesting to observe in this regard that foreign banks are
strategically regionally focused, concentrating their resources particularly in three highgrowth regions, Yangtze River Delta, the Pearl River Delta, ant the Bohai Bay area (ANZ,
2009).
The establishment of the CBRC as a principal regulator has been highly regarded as a
milestone step forward towards a stronger and more effective banking regulatory
system. The major justification for divorcing the regulatory activities from the PBoC was
that, in engaging in monetary, as well as regulatory activities, the PBoC would
experience conflicts of interest (Shi, 2004) caused by the interaction of micro
(regulatory) and macro (monetary) policies (Goodhart and Schoemaker, 1993). The
creation of the CBRC also represented an acknowledgment by the Chinese authorities of
a deficiency in its banking regulatory system; particularly, a lack of market discipline and
inadequate regulation of risk management (Shi, 2004).
Although it has been stripped of banking regulatory power, nonetheless, the PBoC still
plays a crucial role in the Chinese banking sector. As noted above, under the supervision
of State Council, the PBoC is now primarily concerned with making and implementing
monetary policy, with a focus on the macro-economy, and the safety of entire financial
system3 . In accordance with its enabling legislation, the PBoC supervises interbank
markets, the payment, and, the settlement system, and credit *J.F.R. & C. 369
information system4 . These are crucial to the operation of individual banks. The PBoC
remains the guardian of the systemic safety of the entire banking sector. However, in the
absence of a formal deposit insurance scheme in China, the Chinese government plays a
role as a lender of last resort in the event of crisis. In the wake of the global financial
crisis in 2007, the Chinese government provided an implicit guarantee for retail deposits
(Kang, 2010), to insure against the unraveling of the financial system and economy.
In addition, the PBoC oversees the State Administration of Foreign Exchange (SAFE)5 .
Although the legislation that created the SAFE does not contain implicit or explicit
mandates, the PBoC has delegated to the SAFE the power to supervise and regulate the

Page4

foreign exchange market (PBoC, 2010). Chapters 2-4 of Rules of Foreign exchange
regulation of People's Republic of China (1997) describe the jurisdiction of the SAFE.
Here it is stated that SAFE takes regulatory responsibility for all banking businesses
related to foreign currencies.
Three other governmental departments are also of relevance to foreign banks. These are
the Ministry of Finance (MoF), the National Development and Reform Commission
(NDRC), and the State-Owned Assets Supervision and Administration Commission
(SASAC) together with their local affiliates. The Ministry of Finance is the major
executive body for government financial policies. It is also mandated to manage the
financial industry at a macro level, and to guide financial institutions as to their entry
and operation in the Chinese markets (Ministry of Finance, 2011). The ministry and its
local affiliates play a role in introducing foreign banks to other regulators. The National
Development and Reform Commission regulate the pricing of banking services and
products (National Development and Reform Commission, 2011). The SASAC is charged
with overseeing state-owned entities (SOEs) (Li, 2010). Although the SASAC does not
have jurisdiction over foreign banks operating in China, its operations concern these
because of their dealings with SOEs, most notably with Chinese banks.
On some occasions, these authorities can have significant incidental impact on foreign
banks operating in China. For example, in 2008-2009, some SOEs suffered considerable
losses, reportedly more than 11 billion in yuan (China Finance Net, 2009), in dealings
with derivative products via foreign banks. Consequently, the SASAC issued a notice
prohibiting SOEs' use of speculative derivative transactions (Li, 2009). The intervention
by the SASAC took foreign banks by surprise, and resulted in significant losses being
suffered by the foreign banking institutions involved. As a result, it is reported that
foreign banks were largely excluded from what had being a key source of revenue, with
their derivatives business being wound down (Financial Times, 2009).
This incident demonstrates that foreign banks run a significant risk of sudden
unexpected changes in government policies and resultant interference in banking
activities in a manner and to a degree that they may not be accustomed to in their home
jurisdictions. Foreign banks need to be aware of the scope of the activities of these three
authorities and uncertainties their activities can generate.
The CBRC stands on an equal footing with PBoC and the other three governmental
agencies, with all organisations exercising different functions within the banking sector,
but with all of them being accountable to the State Council. In particular, the CBRC is
subject to Chinese government directions with respect to its regulatory initiatives. It is
the central government's stated intention that CBRC shall operate free *J.F.R. & C. 370
from intervention by local governments6 . The law does not however insulate CBRC from
control by the State Council.
In 2006, a landmark regulatory initiative, Regulations of the People's Republic of China
on Administration of Foreign-Funded Banks (Regulation (2006)), was promulgated by the
Central People's Government. This primarily concerned foreign banks' entry into Chinese
banking sector in the form of representative offices, foreign branches, and local
incorporation. It mandated that the CBRC had comprehensive power to license and
regulate foreign banks that provide banking business in China. In interpreting and
clarifying provisions in Regulation (2006), the CBRC enacted the Rules for Implementing
the Regulations of the People's Republic of China on Administration of Foreign-Funded
Banks (2006)(Rules(2006)). Under s 3 of Rules (2006), the CBRC required foreignfunded banks to comply with prudential requirements related to reputation, sound
business performance, competent managerial personnel, risk management system,
internal control, and corporate governance7 . Pursuant to s 21 of the Law (2003),
prudential regulation also extends to areas of capital adequacy, asset quality, loan loss
provisioning, risk concentrations, connected transactions and liquidity management.
Acting on this, the CBRC has taken on an entity-specific approach to ensure the sound
operation of individual banks in China. One feature in this regard is CBRC's emphasis on
banks' loan-to-deposit ratios. This is currently set at 75 percent8 . The CBRC reportedly

Page5

will monitor this ratio on a daily basis from June 2011 (Xinhua, 2011). The rationale for
this ratio derives from the fact that banking business conducted by Chinese banks is
mainly loan focused, thus a loan-to-deposit ratio requirement is a simple way to control
loan size and to ensure adequate liquidity in Chinese banks. Since a loan-to-deposit ratio
is not normally adopted by regulators in other jurisdictions, foreign banks' local
incorporated operations have been given a five year window to comply9 . Foreign banks
have continued to raise concerns as to their ability to conform the 75 percent loan-todeposit ratio by 2011 as they are comparatively weaker in generating local deposits
(PwC, 2010, p. 57).
Following the global financial crisis, the CBRC introduced new macro prudential
regulatory measures to address pro-cyclicality and to strengthen the resilience of the
entire banking sector (Basel Committee on Banking Supervision, 2010). These included a
higher capital ratio, and, leverage and provisioning ratios. In particular, the provisioning
ratio on expected loss is set at 2.5 percent10 . This ratio, which refers to expected loss
provisioning in terms of overall loan size, aims at controlling non-performing loan.
Foreign banks feel this ratio is unduly restrictive on them. In general terms, foreign
banks in China possess an advantage in risk management over Chinese banks (Hope et
al., 2008). Thus, application of a 2.5 percent expected loan loss level to all banks, does
not properly reflect foreign banks' actual expected credit losses and fails to recognize
foreign banks' margin in risk management.
The CBRC is also a regulator for business conduct. One key element of China's banking
regulation is that all banking products or services fall within the regulatory framework. In
accordance with s2 of Law (2003), prudential regulation is not only applied to banking
institutions but also to their banking business products and services. Information
disclosure is therefore an integral part of the CBRC's regulatory reach to ensure business
conduct of banks consistent with regulatory expectations. One of the CBRC's specific
objectives is to increase public knowledge about financial products, services and the
related risks through education and information *J.F.R. & C. 371 disclosure (CBRC,
2009, p. 16). Overall, the CBRC takes a broad and rigorous approach to the regulation of
banking products and services. Approval of banking products must be sought from the
CBRC on a one-by-one basis11 . For instance, local incorporated foreign banks need to
apply for individual licenses for core banking business, such as yuan business or bank
card business.
Within its articulated regulatory power in relation to banking institutions and their
business12 , the CBRC performs its rule-making function on a pervasive basis. The
extent of reliance on prescriptive rules is extensive, ranging from housing financial
services to syndicated loans. Provisions contained in those rules are made to guide
banks in measuring risk and business contracting. As an example consider the Rules on
Auto Loans (2004). A number of features in this regulation indicate that the CBRC
attempted to bring all aspects of auto loans under regulation. Sections 9 and 10 dictate
six factual eligible requirements and four other eligible considerations for a prospective
auto loan applicant13 . Factual eligible requirements extend to matters such as
prospective applicants' ability to repay debts and other eligible considerations include the
usage of purchased auto vehicles. This regulation therefore goes beyond the boundaries
of information disclosure by incorporating business practicalities surrounding auto loans.
Such heavy touch supervision is less evident in developed economies. Another example
of regulation of the same nature lies in the CBRC's regulation of banks' internal
management that encompasses appraisal of directors' and officers' performance by
setting appropriate behavior standards and evaluative performance criteria14 . For
instance, the CBRC has identified 11 circumstances where directors are not competent,
including having failed to attend two-thirds or more board meetings in a financial year,
and having failed to exercise voting rights properly to express dissent15 . Again these
are more obviously prescriptive than general statements of directors' duties which are
more common in the jurisdictions of developed countries.
It is safe to conclude that while it remains a prudential and business conduct regulator,
the CBRC also strives to facilitate and guide the commercial undertakings of banks.

Page6

Dealing with under-developed Chinese banking institutions, the CBRC has taken on the
obligation of nurturing desirable banking practices in putting together those commercial
oriented initiatives, examples of which are given above. In order to fulfil this implicit role,
as a consequence, the CBRC's functions and powers of necessity embody all that is
required to achieve those objectives and goals in its regulatory process. Thus, an
understanding of those implied powers, incidental to the CBRC's regulatory function,
provides further insights into China's banking regulatory system.
In compensating for banks' lack of substantial expertise and experience in particular
areas of internal management and risk management, the CBRC implements paternalistic
regulation designed to guide banks' operations at a grassroots level. However, regulatory
initiatives and exercised regulatory powers in this regard are not within the explicit
powers given by its primary enabling legislation, Laws (2003). While the regulator is
eager to offer the best possible practices to banks, these regulatory initiatives may
disadvantage some banks, in particular foreign banks, which already have highly
developed practices in these areas of risk management and corporate governance.
Furthermore, some regulatory measures exploit foreign banks' weaknesses and enable
Chinese banks to play to their own strengths and enable them to conduct business on
more advantageous terms. By way of illustration, controlling banks' *J.F.R. & C. 372
operational risk is an important part of prudential regulation16 . In 2009, the CBRC
increased its supervision in terms of one aspect of operational risk identification customer authentication. Banks are subject to stringent rules in dealing with corporate
customers. Representatives of new corporate customers have to visit bank premises in
person and banks are required to videotape the contracting process. Compared to their
Chinese counterparts, this new regulatory initiative disadvantaged foreign banks as they
normally do not have an extensive network of local outlets for customer access.
Reportedly, a foreign bank incurred a substantial loss as a customer was not willing to
travel to comply with this compulsory regulatory procedure (PwC, 2010, p. 60).
With well defined regulatory obligations vested in the PBoC and the CBRC, it is safe to
conclude that an objective-based approach has been executed in accordance with those
various regulatory objectives. The PBoC is in charge of systemic regulation whereas
Chinese government remains the lender of last resort. The CBRC, on the other hand, is
accountable for prudential regulation, micro or macro, as well as the regulation of
business conduct. Although it is not within its formal mandate, in exercising its
regulatory powers in the regulatory process, particularly in the course of its rule-making,
the CBRC also has a role in paternalistic regulation, where it takes a stake in commercial
wellbeing of individual banks. As we have seen there is a significant regulatory incursion
into the internal business management processes of banks by the CBRC through
regulatory means. This reflects an historical association between the regulator and the
regulated in China. The equity interest held by central and local Chinese governments in
Chinese banks, and the active role played out by governments in China's banking reform
(Song, 2008) has also significantly influenced the CBRC's regulatory approach. Chinese
banks' inexperience in corporate governance, risk management and product innovation
has also made it necessary for the CBRC's to undertake paternalistic regulation. In
compensating for or remediating banks' commercial practices, in this way, the ultimate
aim of the regulator is to improve the low profitability of Chinese banks (GarciaHerrero et al., 2007).

III. Why does China regulate

The mandatory regulatory objectives of the CBRC reflect banking regulation under the
public interest theory: to protect fair competition in the banking industry and to enhance
the industry's competitiveness, to promote the safety and soundness of banking industry
and maintain public confidence, and to protect the interest of depositors and consumers
(CBRC, 2010, p. 13).
In relation to foreign participation in the Chinese banking sector, Chinese regulators
believe that Chinese banks are still vulnerable to foreign competition (Baxt, 2010).
Foreign banks have a competitive edge in providing tailored products and service, and

Page7

they are able to leverage on new and better products and services already developed in
home markets (Achhorner et al., 2006).On the other hand, it is acknowledged that
foreign participation and competition would assist in the development of the Chinese
banking system (Feng, 2003). Foreign equity participation has been viewed as a means
to assist Chinese banks overcome their lack of managerial experience, risk control
capacity, and corporate governance (PBoC, 2002). There has been an observable trend
of continuing growth and expansion of products and services by Chinese banks (PwC,
2010, p. 1). The introduction of foreign banks was also expected to improve the
competitiveness of the domestic banking system in the long term (Leung et al., 2003).
*J.F.R. & C. 373 However, the degree of openness is limited to a level that allows
Chinese banks to learn from the practices of their foreign counterparts, gradually eroding
foreign banks' competitive advantage. It does not allow foreign banks to operate in areas
where it is difficult for Chinese banks to compete in the short term, and where foreign
banks might obtain a competitive edge useful in the long run. Due to these unfavourable
regulatory initiatives, foreign banks have been deprived of some leverage in competing
with their Chinese counterparts. Customised banking products and services, once an
area of advantage for foreign banks, have been progressively emulated by Chinese
banks. Wealth management is a good illustration. In 2007, foreign banks were frustrated
by the pace of regulatory progress in allowing the roll-out of their wealth management
products, an area where Chinese banks were inexperienced (KPMG, 2007). Three years
later, wealth management product differentiation between foreign banks and Chinese
banks has blurred. It is acknowledged that foreign banks can now only compete with
Chinese banks in terms of wealth management business by providing a better service
(PwC, 2010, p. 7). In this light again we see the CBRC as a paternalistic regulator in
nurturing growth and development of Chinese banks.
In the current Chinese environment, regulatory priority has been given to the safety and
soundness of the banking industry, and the security of domestic deposits. Vice-president
of the CBRC, Wang, has articulated acceptance of foreign entrants is firmly based on the
premise that safety of China's banking system remains assured (Wang, 2007). In fact,
although foreign banks' investment in the Chinese banking sector has not been
significant in relation to the overall size of that sector, it is apparent that there has been
an observable increase in foreign bank participation in terms of absolute assets value
(CBRC, 2007a, 2008, 2009, 2010). Within their regulatory objectives, regulators seek to
strike a balance between China's financial stability and openness towards foreign
participants. This balance is difficult to achieve as it is also complicated by the CBRC's
role as a paternalistic regulator. In the end, the competitiveness of Chinese banks, and
the competition between Chinese and foreign banks is critical to the openness of the
banking sector.
In private interest theory, banking regulation can be captured by private parties, the
regulator and the regulated entities. China's case aligns with the perception that
politicians and political parties regulate to their own advantage and capitalize upon
regulation for their own ends. Chinese banking regulations have long reflected
governmental policies. Since 1979, the banking sector has been used to support stateowned enterprises. Banks are directed to provide prompt loans with multiple channels of
supply, and to extended loan coverage in SOE industries17 . Another observation is that,
as distinct from central government, local governments are also beneficiaries of banking
regulations. Through local government financing companies, bank credit has been
channelled to fulfil the needs of local governments' fiscal policies. In 2008, the Chinese
central government introduced a 4 trillion yuan stimulus package, to which local
governments' contribution was 2.82 trillion yuan (Xinhua News Agency, 2009). To
address the magnitude of the fiscal challenge confronting local governments, banks have
contributed 80 percent of the local governments' loans obtained by the local government
financing companies (Chang et al., 2010).
Since its inception, the CBRC, has developed a government policy-based regulatory
approach, and, the 11th National Five Year Plan and National Macroeconomic Policies
have heavily influenced the CBRC's regulatory practices (CBRC, 2009, p. 116). *J.F.R. &

Page8

C. 374 Through its regulatory directives18 , the CBRC ensured that credit was extended
to the rural economy in an attempt to overcome the perceived shortage of financial loans
directed to agricultural production in 200819 . Guided by the State Council's policy,
Finance Promoting Economy, the CBRC directed banks' lending to support the rural
economy. The developing West China strategy has also been supported by the CBRC
actively guiding financial institutions in that direction. Special treatment has been
extended to banking institutions that respond to such priority policies20 . Foreign banks
are not immune from these policies and have been encouraged to set up branches in
rural and western areas through the imposition of less stringent market entry
requirements in comparison to urban areas21 . In addition to branches, there has been a
new policy invention, county banks, available for foreign banks to use to expand into
rural and western areas. As an entry vehicle, county banks attract comparatively lax
regulatory requirements22 .
By exercising these regulatory powers, the CBRC fulfils its economic and social
obligations, with its rule making activities being aligned with government macroeconomic
policies. These initiatives are aimed at increasing the availability of financial services,
and potentially promoting economic development in China's rural and western areas. It
is widely accepted that the increasing availability of financial services (Olson, 2003), and
boosting economic development (Alllio et al., 2004) are legitimate goals for banking
regulation. Increasing financial services in rural areas has been a long standing
characteristic of banking regulations in emerging economies (Nair and Kloeppinger-Todd,
2007). So too, social welfare considerations are used to justify preferential credit policies
towards the historically disadvantaged in China's rural and western areas. It is a banking
regulatory approach designed to benefit the country at large.
As a result, commercial banks are engaged in significant state-directed lending while the
CBRC still has macroeconomic policy goals as its mandate (Bell and Chao, 2010, p. 7). In
this regard, banking regulatory objectives are dependent upon the government's
economic policy, and banking regulation aimed at directed funding is used a substitute
for taxation and generation of disposable credit for central and local governments. The
objectives and direction of the banking regulations rely on the government's policy
orientation. In China's case, to reiterate, it is evident that political factors play a huge
role in shaping banking policies.
While banks have been important in helping the government achieve its economic
objectives (Bell and Chao, 2010, p. 8), there is a concern about the danger of making
credit lending decisions without any adequate commercial consideration and that this
may be detrimental to the stability of the banking sector in the long run. It also
undermines the interest of the regulated entities, violates market principles and distorts
banks' commercial motivations. Banking policies should encourage banks to operate
efficiently and to make sound capital-allocation decisions based primarily upon
commercial considerations (Barth et al., 2006).

IV. How does China regulate

A well established regulatory framework ensures clarity in regulatory expectations,
certainty in implementations, and is necessary for a high level of compliance. The
following discussion attempts to relate China's regulatory framework to principles-based
*J.F.R. & C. 375 and rules-based, command-control and self regulatory approaches of
banking regulation, and review the associated regulatory implications for foreign banks.
The Chinese banking regulatory framework is four tiered. At the top sits legislation
enacted by the National People's Congress. Legislation in this category is very limited.
Only four pieces of legislation, namely, Laws of People's Republic of China Banking
Regulation (2003), Laws of People's Republic of China People's Bank of China (1995),
Laws of Commercial Banks (2003) and Laws of People's Republic of China Commercial
Banks(2003) have been enacted by the National People's Congress. The first, Laws
(2003), is the enabling legislation for a banking regulatory body. Specific regulatory
powers are delegated to the CBRC by the legislature. A further initiative of great
importance regarding foreign banks, Regulations of the People's Republic of China on

Page9

Administration of Foreign-Funded Banks (2006), was produced by the State Council, and
the CBRC subsequently issued interpretive rules on specifics, and these have been
implemented accordingly23 . The State Council and its agencies are authorized by the
National People's Congress to perform an interpretative function in the course of
government administration24 . It is important to note that, as opposed to the National
People's Congress, initiatives that regulate foreign banks emanate from a lower level of
the legal hierarchy, and the interpretative power is the preserve of the regulator.
The second tier is regulatory policies set by the CBRC. Those policies reiterate legislative
principles set out in legislation (CBRC, 2011). There have been a range of policy matters
addressed by the CBRC. Those policies are indicative of the CBRC's regulatory and
supervisory directions over the medium-to-long term25 . The medium term goal of the
CBRC focuses on a prudential framework whereas the long term goal is to provide a fair
and competitive market (CBRC, 2008, p. 60). Among those considered most critical to
the entry and operation of foreign banks is local incorporation policy. This refers to the
policy initiatives in 2006 encouraging foreign banks operating in China to incorporate
locally in preference to operating as branches of foreign banks, and providing associated
regulatory incentives to the banks to undertake local incorporation. From a risk
viewpoint, the CBRC considers that local corporations are more controllable as opposed
to foreign branches (CBRC, 2007a, p. 43). Foreign branches do not possess any
independent legal personality in host countries, and parent banks are thus responsible
for the liability of their branches (Cerutti and Ariccia, 2007). Therefore, depositors in
host countries will not have priority in any debt recovery process in the event that the
parent bank experiences financial difficulty (CBRC, 2007a, p. 43). The emergence of
local incorporation policy at the time presented a unique opportunity for foreign banks to
expand in China and potentially conduct retail business there. This is an example of a
regulatory policy that was a proactive initiative of the regulator in response to perceived
contemporary regulatory needs. However, from 2009 the local incorporation policy
ceased as policy emphasis has shifted to county banking26 .
The third tier is the CBRC's guidances, notices, and rules. Most of the CBRC's regulatory
initiatives fall into this category. As China finds specific measures more helpful than
principles-based approach (Ping, 2011), guidances, notices, and rules are prescriptive in
content and abundant in numbers. In general, the third tier of regulatory initiatives
serves as a bottom rung of China's banking regulation, and deals with contemporary
regulatory issues.
*J.F.R. & C. 376 A proportion of guidances, notices and rules seek to regulate banking
activities, banking products, codes of conduct or practice, and internal governance. For
instance, with regard to loans for the acquisition of fixed assets, regulatory rules provide
specific guidance on applicant evaluation, risk assessment, contracting process, loan
disbursement, and aftermath monitoring27 . In particular, Section 25 of the relevant
Guidelines states that where a loan exceeds 5 percent of the value of the fixed asset or 5
million yuan a lender trustee payment scheme shall be employed.
It is apparent that, from the perspective of regulatory approach, between principlesbased and rules-based, the CBRC has pursued a rules-based regulatory approach. The
above Guidelines on Fixed Assets Loans (2009) is a typical example of how commandcontrol regulation has been applied in the regulatory process.
Although a principles-based approach to regulation may not work well for emerging
markets (Ping, 2011), in China, while command-control regulation is dominant,
principles-based regulation approach by the CBRC has emerged partly in response to
regulatory demand for innovation (CBRC, 2007a, p. 58). At the risk of oversimplification,
I will try to illustrate how those two approaches have been adopted and furthermore,
how command-control and self regulation are both evident in this combined approach.
From 2007, the CBRC required that banks adopt an internal ratings-based (IRB)
approach to determine credit risk (CBRC, 2008, p. 72). Furthermore, banks were also
encouraged to apply an advanced IRB approach (CBRC, 2007b). In determining market
risk, the CBRC suggests that a standardized approach shall be adopted among

Page10

commercial banks28 . The internal models approach, which is perceived to be more

advanced, was introduced to commercial banks with complex businesses to address
market risk29 . Although there are three approaches specified available to gauge
operational risk30 , the CBRC has not expressed a preference for a specified approach in
its documents. It directs banks to choose the most approach most appropriate to their
specific circumstances in managing operational risk31 . While ensuring an appropriate
code of banking practice in this regard, the CBRC leaves the precise choice to banks as
to which approach best fits their circumstances. This gives the regulated banks flexibility
in choosing and developing most desirable approach in controlling credit risk.
Another example to illustrate the gradual application of self-regulation, through a
principles-based approach, lies in derivatives business. In 2006, the CBRC promulgated
Implementation Measures on Administrative Licensing Items Relating to Foreign Financial
Institutions (2006). Chapter 3 of this laid down implementation measures in relation to
requirements and procedures for conducting derivatives business. Despite the fact that
the scope of derivatives business was not addressed, Sections 98 and 99 provided
guidelines for foreign banks to apply when expanding their derivatives business. This
was achieved by submitting a specific application to the CBRC. The CBRC started to
approve some derivatives business relating to equities and commodities on a case-bycase basis (Han, 2007). In addition, the regulation of derivative business was also
addressed by the Guidelines on Financial Innovation of Commercial Banks (2006).
Instead of well-elaborated rules, this set out general principles governing financial
innovations like derivatives; know your business, know your risks, know your customers,
and know your counter-parties32 . The regulatory intention was to meet the needs of the
economy33 . As a result, although subject to the regulator's approval and oversight,
derivative products development and marketing were largely *J.F.R. & C. 377 a selfadministered process. Foreign banks subsequently embarked upon derivative business
and it was a key source of revenue for foreign banks trading in China34 .
The final tier is the CBRC's Window Guidance measures. China's Window Guidance was
largely modelled on Japanese practice which existed until the early 1990s35 . Previously,
the study of Window Guidance in China has been focused on the monetary policy
regulator, PBoC as the role of Window Guidance predominantly relates to credit control.
To date the CBRC has been largely neglected as another employer of Window Guidance
measures. However, the CBRC also employs Window Guidance as a powerful regulatory
initiative to keep banks in line with its regulatory goals. Although it is not legally
enforceable, the CBRC claims it as a suasive regulatory approach36 . The purpose of
Window Guidance is to inform banks of the CBRC's regulatory intentions, prepare guiding
opinions, or signal risks to financial institutions37 . Window Guidance is usually in the
form of verbal or telephone communications, but is never in writing.
At the time it was created, the CBRC used Window Guidance to advise 11 commercial
banks to limit lending to certain sectors (Geiger, 2008). In 2009, to avoid bank loans
entering into the real estate market and the capital market, the CBRC issued a notice on
loans management and stepped up Window Guidance measures in this regard (Xinhua,
2009). In accordance with this Notice, banks were required to control loan size. Window
Guidance occurred in relation to what was the proper loan size for a specific bank. It
consisted of verbal communications between the regulatory officer from the CBRC and
the compliance office at a bank. Standards for a proper loan size differed from bank to
bank due to their own asset size and loan-to-deposit ratio. Under the overarching
principles, the CBRC provided various detailed Window Guidance measures to different
banking institutions according to their characteristics (CBRC, 2008, p. 53). The extent of
reliance on Window Guidance measures is quite extensive, encompassing banks activities
in capital markets, subordinated bonds issuance, overseas investments, loans related to
real estate, high polluting, and, energy consuming and resources dependent industries
(CBRC, 2008, p. 64). In 2007, Window Guidance measures were employed to increase
loans to pork producers as pork was in short supply38 .
As illustrated, Window Guidance is a combination of principles-based and rules-based
approaches. Particular regulatory objectives are integrated in the form of guidance,

Page11

notice and rules, and these are open-ended in assisting the application of specific
regulatory objectives in accordance with the different circumstances of individual banks.
Open-ended rules are subject to the interpretation of the regulator and allow the
regulator to respond to constantly changing conditions without the need for formal
frequent amendments.
As implemented by the CBRC, Window Guidance is a flexible regulatory tool, and is not
constrained by time and geography. Window Guidance measures enable regulators to act
in a prompt manner to changing circumstances39 . Adapting to changing economic
conditions in contemporary China has been a major challenge for regulators. The CBRC
affiliates in local areas apply specific rules as required by local needs. In banking sector,
one-size-fits-all rules are unable to account for the ways in which risk manifests itself in
individual regulated entities (Bamberger, 2006). More importantly, in an economy like
China's with many markets in which the population of the regulated banks is vast, and
the dynamics of individual banks vary dramatically, *J.F.R. & C. 378 Window Guidance
allows for a tailored approach to regulating different categories of banks in terms of size
and complexity40 . For instance, some foreign banks in China hold complex derivative
products whereas some Chinese banks still primarily focus on loan-based basic banking
products. As a result, the CBRC is able to devote its regulatory resources to a
differentiated approach in accordance with varying degrees of regulatory criteria of the
regulated entities. Overall, Window Guidance measures provide the regulator with
constant interaction with banks, provide the regulators room for regulatory discretion;
and also provide regulators an avenue to execute political concerns, and to effectuate
policy considerations (Zhi, 2011).
Although Window Guidance is claimed to be suasive in nature and consequently does
not incur any legal or regulatory consequences if it is not adhered to, the efficacy of
these measures is evident in the fact that they have effectively determined the loan
growth of individual banks as directed by the regulator (The Banker, 2010). The
implementation of Window Guidance has heavy weighting for individual banks in the
CBRC's scoring system which determines banks' potential eligibilities for banking
products and business. On the other hand, as Window Guidance does not contain explicit
penalty sanctions, it may well undermine the effectiveness of those measures in
implementation. Window Guidance does not always deter banks' undesirable behaviour.
Banks could still extend their credit beyond their loan limits and to industries like real
estate which have been prohibited by regulators (National Audit Office of the People's
Republic of China, 2009).
Window Guidance measures can also be problematic in implementation. They create
difficulties for new market entrants, especially foreign banks in understanding China's
regulatory culture. The challenge confronting foreign banks comprehending Window
Guidance is apparent. As purely verbally transferable regulatory measures, the content
of Window Guidance measures is solely obtained and possessed by compliance officers.
It also made it difficult for local compliance officers to convey the CBRC's Window
Guidance Measures to their off-shore head offices. When pressed for the source of the
guidance, local officers are unable to provide written authority and are driven back to
their own understanding or interpretation of the verbal guidance. Foreign head offices
are often not satisfied with the lack of an officially verifiable version of the guidance.
They tend to see this as a lack of transparency. The further implementation of those
measures is dependent on compliance officers and their discretion where their
interpretation and clarification could dictate regulatory outcomes. The question could
also arise whether individual compliance officers' interpretations are consistent with the
regulatory intention of the regulator. Certainty of regulatory initiatives could be lost in
transmission and the exclusive interpretation of individual regulatory officers. Window
Guidance also inevitably increases banks' compliance cost. A compliance office in a
foreign bank may have five or six conversations a day on compliance issues (PwC, 2010,
p. 64).
From the above, it is clear that Window Guidance falls short of clarity in regulatory
expectations, and compromises certainty in implementation, the flexibility of which,

Page12

however, provides the CBRC adaptability in implementation. In utilizing the merits of

regulatory principles, at the same time, the CBRC guides individual banks by providing
them with descriptive rules in an informal but resolute manner. Given quickly changing
social, and economic circumstances, the flexibility of Window Guidance measures is
prized by the CBRC in meeting contemporary regulatory needs.
As the above examples illustrate, despite dominance of traditional command-and-control
regulation through rules-based regulation, principles based *J.F.R. & C. 379 regulation
has been gradually incorporated into the regulatory process to promote innovation and
productivity among banks in the banking sector (CBRC, 2007a, p. 13). Regulatory means
of command-and-control, relying more on detailed prescription and penalty, are
undoubtedly present, but there is also a degree of self-regulation within more general
and looser control. This combination shows China's regulatory continuity with the past of
a command economy in which the government is in firm control, imposing fixed rules
with clearly articulated consequences in the event of non-conformity. This has assured
certainty and compliance in banking regulation for various participants. The regulatory
measures also have responded to new economic circumstances and have tended to move
away from the traditional command-control to a certain degree of reliance on principles
based regulation. Through delegating some interpretative power to the regulated entities
and external third parties, it is evident that principles based regulation has emerged as a
complement to command-and-control regulation.
Exceptional occurances, like the GFC had a considerable bearing on China's banking
regulatory trajectory. The GFC hit both the UK and the USA, representatives of a
principles-based and rules-based regulation, respectively, hard and both jurisdictions
suffered severe banking regulatory consequences. The GFC revealed shortcomings
inherent within those two approaches. To overcome these regulatory detriments, Chinese
regulators have tightened regulatory control and regulatory adjustments have been
made accordingly. Regulatory measures have been moved back toward more commandcontrol regulation. In the case of derivative business banks are confronted with more
stringent risk management requirements41 . Banks have to formulate a sound
assessment system to evaluate the suitability of derivatives products on a one-by-one
basis for each client42 . The CBRC precludes the involvement of any sales personnel of
any offshore entities in derivative business43 . Foreign banks are prohibited from
marketing their offshore derivative products to onshore clients. As a stark contrast to the
previous principles-based approach addressing derivatives business, the CBRC was
taking a more rigid stand and acting forcefully by imposed fixed standards regulating
derivatives business after the GFC.

V. Conclusion
A decade into banking sector reform in China following the formation of the CBRC, we
find that the rationale and principles of banking regulation are not fundamentally
different from developed jurisdictions. However, while preserving common regulatory
objectives and goals, given the country specific nature of banking regulation, Chinese
banking regulation also inevitably possesses unique regulatory features. This is an
indication of historical continuity, but also reflective of social, economic, and political
conditions in contemporary China. In addition to express objectives, powers, and
functions contained in laws and regulations, it is necessary to recognise the existence of
a body of implicit goals pursued by the CBRC, and unique means acquired by the CBRC
in undertaking its banking supervision in China.

*J.F.R. & C. 381 References

Achhorner, T., Chng, J., Michaelis, H. and Tang, T. (2006), Banking on China Successful
Strategies for Foreign Entrants, The Boston Consulting Group, Boston, MA.
Alllio, L., Ballantine, B. and Hudig, D. (2004), Achieving a new regulatory culture in the
European Union an action plan, European Policy Centre Working Paper No. 10, European
Policy Centre, Brussels, April.
ANZ, ANZ continues its expansion in China, press release, 3 August 2009, available at:

Page13

www.anz.com/resources/2/8/281478004f115b3f86b3cfb7c5252e88/ANZ-MediaRelease20090803.pdf (accessed 9 May 2011).

Bamberger, K.A. (2006), Regulation as delegation: private firms, decisionmaking, and
accountability in the administrative state, Duke Law Journal, Vol. 56 No. 2.
Barth, J.R., Caprio, G. Jr and Levine, R. (2006), Rethinking Bank Regulation, Cambridge
University Press, Cambridge.
Basel Committee on Banking Supervision (2010), The Basel Committee's Response to
the Financial Crisis: Report to the G20, Bank for International Settlements, Basel.
Baxt, R. (2010), Observations on the Australia-China free trande agreement negotiation
process, Australian Business Law Reivew, Vol. 38 No. 4.
*J.F.R. & C. 382 Bell, S.K. and Chao, H. (2010), The financial system in China: risks
and opportunities following the global financial crisis, White Paper.
CBRC (2007a), Annual Report 2006, China Banking Regulatory Commission, Beijing.
CBRC (2007b), The Guidelines on the Implementation of the New Basel Accord by
China's Banking Sector, China Banking Regulatory Commission, Beijing.
CBRC (2008), Annual Report 2007, China Banking Regulatory Commission, Beijing.
CBRC (2009), Annual Report 2008, China Banking Regulatory Commission, Beijing.
CBRC (2010), Annual Report 2009, China Banking Regulatory Commission, Beijing.
CBRC
(2011),
What
is
the
CBRC,
www.cbrc.gov.cn/chinese/info/yjhjj/index.jsp (accessed 5 May).

available

at:

Cerutti, E. and Ariccia, G.D. (2007), How banks go abroad: branches or subsidiaries?,
Journal of Banking & Finance, Vol. 31 No. 6, pp. 1669-92.
Chang, Y.L., Zhong, X. and Zheng, G.L. (2010), Wo Guo Di Fang Zheng Fu Rong Zi Ping
Tai Cun Zai De Wen Ti Ji Dui Ce problems and solutions for local government financing
platforms, Jing Ji Zong Heng, p. 5.
China Finance Net (2009), Great Loss for SOEs in Derivatives Market, available at:
www.zgjrw.com/News/2010519/index/437634598800.shtml (accessed 10 May 2010).
Feng, H. (2003), Kua Guo Yin Hang Ye Bing Gou Du Wo Guo Yin Hang Ye Fa Zhang de
Ying Xiang impact of overseas merge on China's banking sector, Xue Yuan Xue Bao, p.
67.
Financial Times (2009), China Talks Tough on Foreign Bank Derivatives, available at:
www.ft.com/intl/cms/s/0/0bf37b92-a149-11de-a88d00144feabdc0.html#axzz1NEWAVglI (accessed 24 May 2011).
Fukumoto, T. (2010), Effectiveness of window guidance and financial environment in
light of Japan's experience of financial liberalization and a bubble economy, Bank of
Japan Review Series 2010-E-4, Bank of Japan, Tokyo.
Garcia-Herrero, A., Gavila, S. and Santabarbara, D. (2007), What explains the low
profitability of Chinese banks, Working Paper No. 30, The American University of Paris,
Paris.
Geiger, M. (2008), Instruments of monetary policy in China and their effectiveness:
1994-2006, paper presented at the United Nations Conference on Trade and
Development, Geneva.
Goodhart, C. and Schoemaker, D. (1993), Institutional seperation between supervisory
and monetary agencies, Special Paper 52, LSE Financial Markets Group, London.
Han, Q. (2007), New regulatory developments in China's derivatives markets, China
Law & Practice, Vol. 34, February.
Hope, N.C., Laurenceson, J. and Qin, F. (2008), The impact of direct investment by
foreign banks on China's banking industry, Working Paper No. 362, Stanford Center for
International Development, Stanford, CA.

Page14

Kang, L.M. (2010), CBRC Feedback on the BCBS Documents, China Banking Regulatory
Commission, Beijing.
KPMG (2007), Retail Banking in China: New Frontiers, KPMG and Reuters, New York, NY.
Leung, M.K., Young, T. and Rigby, D. (2003), Explaining the profitability of foreign banks
in Shanghai, Managerial and Decision Economics, Vol. 24 No. 1, pp. 15-24.
Li, W. (2009), Derivatives Caused a Great Loss to SOEs, available at:
http://finance.sina.com.cn/roll/20091203/02267048089.shtml (accessed 15 May 2010).
*J.F.R. & C. 383 Li, R.X. (2010), Understand the New Mission of SASAC: Solving
Historic
Problems
of
SOE,
available
at:
www.ce.cn/new_hgjj/guonei/zhbd/200507/14/t20050714_4184436.shtml (accessed 18
May).
Ministry of Finance (2011), Zhu Yao Zhi Neng Functions of Ministry of Finance, available
at: www.mof.gov.cn/zhengwuxinxi/benbugaikuang/ (accessed 19 May).
Nair, A. and Kloeppinger-Todd, R. (2007), Reaching Rural Areas with Financial
Services: Lessons from Financial Cooperatives in Brazil, Burkina Faso, Kenya,
and Sri Lanka, The World Bank, Washington, DC.
National Audit Office of the People's Republic of China (2009), Report on Auditing
Regarding
Central
Government
Budget
in
2009,
available
at:
www.audit.gov.cn/n1992130/n1992150/n1992591/2526765.html (accessed 3 May
2011).
National Development and Reform Commission (2011), Zhu Yao Zhi Ze Functions of
National Development and Reform Commission, available at: www.sdpc.gov.cn/jj/
(accessed 19 May 2011).
Olson, M.W. (2003), Increased availability of financial products and the need for
improved financial literacy, Speech Delivered at the Amercia's Community Bankers 2003
National Compliance and Attorney's Conference and Marketplace, San Antonio, available
at: www.federalreserve.gov/boarddocs/speeches/2003/20030922/default.htm (accessed
10 May 2011).
PBoC (2002), Jin Yi Bu Fa Hui Xian You Zhong Xiao Shang Ye Yin Hang de Zuo Yong
Commercial Banks in County Economies, The People's Bank of China, Beijing.
PBoC
(2010),
China
Banking
Regulatory
Committee,
available
www.pbc.gov.cn/detail_frame.asp?col=1910&id=5&isfromdetail=1#_Toc68074430
(accessed 18 May).

at:

Ping, L. (2011), What regulatory policies work for emerging markets?, ADBI Working
Paper 265, Asian Development Bank Institute, Tokyo.
PwC (2010), Foreign Banks in China, PricewaterhouseCoopers, London.
Shi, J.P. (2004), Historical movement for Chinese banking regulatory system, Financial
Times, 19 April.
Song, Q. (2008), Government's role in the reform of banking system: evidence from
Chinese state-owned commercial banks, Northeast Decision Sciences Institute
Proceedings, New York, NY, 28-30 March.
The Banker (2010), Zhong Guo Chuang Kou Zhi Dao de You Xiao Xing Yu Jing Rong
Huan Jing the effectiveness of China's window guidance and financial enviroment, The
Banker, December.
Wang, B. (2003), Yin Jian Hui Fen Zhi Establishment of CBRC Branches, available at:
http://economy.enorth.com.cn/system/2003/10/14/000649510.shtml (accessed 2 June
2010).
Wang, Z.X. (2007), Zong Jie Guo Nei Wai Cheng Gong Jing Yan Wan Shan Wai Zi Yin
Hang Jian Guan Ti Xi Drawing Lessons on Domestic and International Experience,
Improving Regulatory System on Foreign Banking.
Xinhua (2009), Yin Jian Hui Jin Ji Chuang Kou Zhi Dao The CBRC's Window Guidance

Page15

on
Bank
Loans,
available
at:
http://news.xinhuanet.com/fortune/200906/24/content_11590408.htm (accessed 2 May 2011).
Xinhua
(2011),
Loan-to-Deposit
Ratio,
available
at:
www.xinhua08.com/bank/jgdx/201104/t20110413_455128.html (accessed 19 May).
Xinhua News Agency (2009), Premier Wen Answers Questions Put to Him by the Media,
available at: www.gov.cn/2009lh/content_1259224.htm (accessed 10 February 2011).
*J.F.R. & C. 384 Zemin, J. (2002), Report for 16th Chinese Communist Party National
Meeting, Beijing, 8-14 November.
Zhi, J.D. (2011), New Developments in Finacial Sector Zhun Que Ba Wo Guo Nei Wai
Jing Ji Jin Rong Xin Xing Shi, Tui Dong Wo Guo Yin Hang Ye Ke Xue Fa Zhan, available
at:
www.cbrc.gov.cn/chinese/home/jsp/docView.jsp?
docID=20080121FBCFC879C4E50C58FFF32AC537AE6600 (accessed 3 May 2011).

Corresponding author
Wei Ping He can be contacted at: weipinghe0424@gmail.com
J.F.R. & C. 2012, 20(4), 367-384
___________________________________________________________________________________________
1.

Decision on Chinese Banking Regulatory Committee in charge of supervisory and regulatory

responsibility 2003.

2.

S 1, Laws of People's Republic of China Banking Regulation 2003.

3.

Ss 1, 2 Laws of People's Republic of China People's Bank of China 1995.

4.

S4 Laws of People's Republic of China People's Bank of China 2003.

5.

8th National People's Congress Committee, Announcement of Administration of Governmental Agencies,

1993.

6.

S 5, Laws of People's Republic of China Banking Regulation 2003.

7.

S 3, Rules for Implementing the Regulations of the People's Republic of China on Administration of
Foreign-Funded Banks 2006.

8.

S 39, Laws of Commercial Banks in People's Republic of China 2003.

9.

Notice on Implementing Rules of Regulations of the People's Republic of China on Administration of

Foreign-Funded Banks 2006.

10.

Guidance on new regulatory standards 2011.

11.

S 46, Rules for Implementing the Regulations of the People's Republic of China on Administration of
Foreign-Funded Banks 2006.

12.

S15 Laws of People's Republic of China banking regulation 2003. In some jurisdictions, regulators' rulemaking power is confined to implementing statutory objectives. See in s2 Financial Services and Markets
Act 2000 (UK).

13.

Rules on Auto Loans 2004.

14.

Guidance on the Directors' Performance Appraisal of Commercial Banks 2010.

15.

Ss 31 32, Guidance on the Directors' Performance Appraisal of Commercial Banks 2010.

16.

Notice on operational risk control 2005.

17.

Dai Xiang Rong, Gaijin Jinrong fuwu Zhichi Guoqi Gaige he Fazhan, improve financial services
supporting SOE reform, speech delivered at the Zai Zhongguo Renming yinhang Fenhang Hangzhang
Jidu Liehui Shang jiang hua, Meeting of Branch Manangers of the People's Bank of China.

18.

The CBRC promulgated nine pieces of supportive legislation, ranging from innovation to credit extension,
particularly addressing rural financial institutions.

Page16

19.

Financial support for the agricultural development and its production 2008.

20.

CBRC, public notice of the CBRC on further opening up China's banking industry (2005). In 2005,
another five western and northern cities were opened to foreign-funded financial institutions for this
purpose. For instance, an application by a foreign bank to open a branch in the West would be granted
quickly, as opposed to an application to open a branch in the East (CBRC, 2009, p. 61).

21.

Notice of China Banking Regulatory Commission on expanding the pilot program of lowering market
entry threshold for setting up rural banking institutions 2007 and CBRC (2008, p. 122).

22.

Pilot rules on county banks 2007.

23.

Rules for implementing the regulations of the People's Republic of China on Administration of ForeignFunded Banks 2006.

24.

Resolution concerning the strengthening legal interpretative work 1981.

25.

S 11 Fa Lu Gong Zuo Gui Ding rules on the China banking regulatory commission rule-making work
2005.

26.

Only one foreign banks was licensed to local incorporation (CBRC, 2010, p. 38).

27.

Guidelines on fixed assets loans 2009.

28.

S 32 Rules governing capital adequacy of commercial banks 2004.

29.

SS 19.20 Guidelines on market risk management of commercial banks 2005.

30.

The basic indicator approach, the standardised approach and advanced measurement approaches.

31.

S 13 Guidelines on market risk management of commercial banks 2005.

32.

Ss 14-17 Guidelines on financial innovation of commercial banks 2006.

33.

S 3 Guidelines on financial innovation of commercial banks 2006.

34.

Note that derivative business was almost shut down in the wake of GFC (PwC, 2010, p. 30).

35.

Window guidance played a major role in Japan in the past and its effectiveness was undermined by
financial liberalization in the 1980s (Fukumoto, 2010).

36.

Regulatory measures in regulating commercial banks Gu Fen Zhi Shang Ye Yin Hang Jian Guan Gong
Zuo Zhong Ji Zhong Zhuan Men Jian Guan Shou Duan Ji Qi Yun Zuo Qing Kuang de Jie Shao.

37.

Regulatory measures in regulating commercial banks Gu Fen Zhi Shang Ye Yin Hang Jian Guan Gong
Zuo Zhong Ji Zhong Zhuan Men Jian Guan Shou Duan Ji Qi Yun Zuo Qing Kuang de Jie Shao.

38.

Guidelines on supporting pork production 2007.

39.

Regulatory measures in regulating commercial banks Gu Fen Zhi Shang Ye Yin Hang Jian Guan Gong
Zuo Zhong Ji Zhong Zhuan Men Jian Guan Shou Duan Ji Qi Yun Zuo Qing Kuang de Jie Shao.

40.

In China, some banks are sophisticated in risk management whereas some banks experiencing
difficulties in establishing risk management procedures (Ping, 2011, p. 6).

41.

Notice on further strengthening the risk management of derivative product transactions between
banking financial institutions and institutional clients 2009.

42.

S 2 Notice on further strengthening the risk management of derivative product transactions between
banking financial institutions and institutional clients 2009.

43.

S 12 Notice on further strengthening the risk management of derivative product transactions between
banking financial institutions and institutional clients 2009.
2013 Emerald Group Publishing Limited

Page17