Why China’s Banking Can Survive the 2008 Financial Crisis ?

During 2008 and 2010, the subprime crisis in the United States triggered the global financial crisis, China’s banking as its high market capitalizations, good profitability and large scale attracted more and more attentions from the entire world. So, in the next posts I would like to figure out  why China’s banking performed better than other countries’ and what is the situation of its domestic banking after this financial crisis.

From Financial Times

As we can see from the above chart, the top three banks are all from China in 2009.The China’s banking could occupy good position after financial crisis has its outer-cause and inner-cause.

First of all, the outer-cause is the low degree of internationalization of China’s banking. Chinese banks did not participate in the international financial market as sufficiently as large banks in Europe and the US. For example, the total assets of overseas institutions of Chinese banks occupied the all total assets less than 4%, while the percentage of the European and US banks is 40. Also, the bond trading scale of Chinese banks on the international financial market is very limited. When Lehman Brothers declared bankruptcy, the seven listed Chinese banks held its bonds assets less than 722 million US dollars. The loss of the involved China’s banking sector in this subprime mortgage crisis is about10 billion US dollars which is less than 1% of the total size of the US's.

On the other hand, in domestic banking industry, the less intensive competition and government’s efforts contribute to a good performance of China’s banking in financial crisis. In fact the China’s market economy just stared and has not formed a complete mechanism of market competition, that means the competition in china’s banking sector was far less than developed countries, such as the US, accompanied with the insufficient competition, the elimination mechanism was not perfect either, based on this situation, during 2008 and 2010, no banks bankrupted in China. Meanwhile, The People’s Bank of China which is the central bank of China launched quantitative easing policy at the end of 2008, and the government injected 4 trillion RMB to stimulate the whole Chinese financial market, then the turnover of the property market rebounded gradually, as well as the amount of banks’ loans increased dramatically (10 trillion RMB). The scale and profits of China’s banking therefore expanded and rose sharply.