How Chinese Economists Think about China's Banking

On the other hand, many financial specialists from China comment critically on the performance of China’s banking in post-crisis era.

Some of them think the situation in China’s banking is very severe. As some claim, they are very worrying about the near future of banking sector, to be more exact is the refinancing link. In general, there are three methods for banks to raising capital. The main resource is retained profit, banks have to accumulate by themselves. The second one is through the capital market, namely, issuing shares or bond financing. The last one is by means of private shares, for instance, soliciting strategic investors or adding investment of original investors. However, any of them is not easy for China’s banking to raise capital. Yin Zhongli, who is one of famous researchers of Chinese Academy of Social Sciences Finance Research institute, pointed that, the profitability for Chinese commercial banks is rather low and the speed of business expansion is very fast, therefore it is quite difficult to raising capital by them. If they focus on capital market, it is also hard to meet the increasing needs of capital funds of the banking sector as the domestic equity market existing financing function defects. Many banks already realized the incurring problems which are produced by insufficient capital adequacy ratio and credit expansion, they through a public way to issue or additionally issue shares and raise common stocks for raising capital, for some banks they issue subordinated debts to enhance the capital adequacy ratio, but there is no evidence to show if this method is efficient so far. 

Other Chinese experts although believe that the banking sector exists problems, they insist that it is not yet time to be deep in the crisis completely for now or in the near future. They think that if China’s macro economy does not go downhill and maintains relative stable rate of rise in general, then the banking market and business will not fade rapidly.

With no doubt, the defections of China’s banking have aroused strong attention in domestic market, in a short, what exactly the future of China’s banking is will depend on what kinds of efficient measures they would take. So in the final post, I would like to state what these possible measures are.