The great leap forward: The marketing of banking services in China
©1999
Masterarbeit
105 Seiten
Zusammenfassung
Inhaltsangabe:Abstract:
Generally speaking, economic growth is closely related to the efficiency of a countrys financial markets. That is, the more varied the investment alternatives by which economic resources can flow within a country and between countries, the more efficient the financial market. This efficiency leads to a higher level of capital formation, and improved capital utilisation, thereby increasing the utility of both savers and borrowers and promoting economic growth. In line with its transition to a market economy China has, amongst other reforms, embarked on a reform of its financial system, transforming its one-bank monopoly into an integrated system of many banks and other specialised financial institutions. The resulting market complexity and the emergence of domestic and international competition gave rise to the marketing of financial services in China.
Despite banks increasing marketing sophistication and higher spending on marketing, consumer behaviour is only beginning to react to it. On one hand the emergence of a wide variety of financial institutions and financial products has offset the impact of the social system reform on individuals lives. On the other hand, most Chinese still stay with one of the four wholly state-owned commercial banks, perhaps out of habit, perhaps from a feeling of security with their old banks.
The effect on banks has been dramatic, service levels have improved greatly while product quality and variety have become better. However, the lack of market segmentation, partly due to government regulation, limits banks abilities to effectively target consumer groups, (which also hinders consumers information gathering and decision-making).
Transformation of banking is hindered by Chinas poorly performing corporate sector, which strongly undermines banking profitability. China remains one of the weakest countries in terms of strength of the financial sector (Moodys), and the imminent WTO entry might result in disarray in the financial industry. Foreign banks with their sophisticated marketing have already put strong pressure on their Chinese counterparts, who are learning quickly. In the long run, the WTO entry and increased openness of the financial market will increase the competitiveness of the marketplace and enhance the development of the marketing of financial services in China.
This dissertation will be divided into two parts. In the first part I will be talking about Chinas […]
Generally speaking, economic growth is closely related to the efficiency of a countrys financial markets. That is, the more varied the investment alternatives by which economic resources can flow within a country and between countries, the more efficient the financial market. This efficiency leads to a higher level of capital formation, and improved capital utilisation, thereby increasing the utility of both savers and borrowers and promoting economic growth. In line with its transition to a market economy China has, amongst other reforms, embarked on a reform of its financial system, transforming its one-bank monopoly into an integrated system of many banks and other specialised financial institutions. The resulting market complexity and the emergence of domestic and international competition gave rise to the marketing of financial services in China.
Despite banks increasing marketing sophistication and higher spending on marketing, consumer behaviour is only beginning to react to it. On one hand the emergence of a wide variety of financial institutions and financial products has offset the impact of the social system reform on individuals lives. On the other hand, most Chinese still stay with one of the four wholly state-owned commercial banks, perhaps out of habit, perhaps from a feeling of security with their old banks.
The effect on banks has been dramatic, service levels have improved greatly while product quality and variety have become better. However, the lack of market segmentation, partly due to government regulation, limits banks abilities to effectively target consumer groups, (which also hinders consumers information gathering and decision-making).
Transformation of banking is hindered by Chinas poorly performing corporate sector, which strongly undermines banking profitability. China remains one of the weakest countries in terms of strength of the financial sector (Moodys), and the imminent WTO entry might result in disarray in the financial industry. Foreign banks with their sophisticated marketing have already put strong pressure on their Chinese counterparts, who are learning quickly. In the long run, the WTO entry and increased openness of the financial market will increase the competitiveness of the marketplace and enhance the development of the marketing of financial services in China.
This dissertation will be divided into two parts. In the first part I will be talking about Chinas […]
Leseprobe
Inhaltsverzeichnis
ID 8678
Vieira, Carla: The great leap forward: The marketing of banking services in China
Hamburg: Diplomica GmbH, 2005
Zugl.: London South Bank University, MA-Thesis / Master, 1999
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Diplomica GmbH
http://www.diplom.de, Hamburg 2005
Printed in Germany
Carla Edite Vieira, BA, MA, MBA, Msc
Kirchstrasse 130, 3084 Wabern, Switzerland
Tel. 0041 31 961 04 69 Mobile: 0041 78 774 18 67 E-mail: carlaedite@hotmail.com
Curriculum vitae
Profile
Multicultural, multilingual, goal orientated, excellent
analytical
and
conceptual
skills,
highly
adaptable,
intellectually curious
Education
May 2003 October 2004
Msc Development Management
(Dissertation topic: respecting diversity in the health care
sector: a new paradigm for the provision of health care
services to the migrant population in Switzerland)
Open
University,
London
May 2000 May 2001
Master of Business Administration (AMBA Accredited)
Open
University,
London
October 1998 December 1999
Master of Arts in European Business and Languages
(Dissertation topic: The great leap forward: the marketing
of
banking
services
in
China)
South Bank University, London
February 1998 October 2001
Bachelor of Arts (honours)
Including: Undergraduate Diploma in Economics (1998)
Open University, London
January 1994 August 1997
A-Levels, RG Basel
August 1990 June 1993
Diploma in Commerce, Basel Commercial High School
Work
experience
March 2005
Project Consultant, Strategic Marketing, Miro Vision, Korea
January February 2005
Co-Founder and Business Consultant,
NewDimension
Journeys
(provisional
name),
India
November December 2004
Project Consultant Microfinance, RCDP-Nepal
November 2004
Business Consultant, Nature Trail Trekking, Nepal
July October 2004
Research Assistant, SFM, Switzerland
July 2003 July 2004
Trainee, Government, Federal Aliens Office, Switzerland
October 2003
Language Expert, BrainStore, Switzerland
December 2002 August 2003
Project Consultant, Marketing Strategy, IHTTI, Switzerland
January April 2003
French Teacher, Minerva Schools, Switzerland
February November 2002
Several diverse temporary jobs mostly in research
April 1998 July 1998
Bank for International Settlements, Secretary, Switzerland
August 1994 September 1997
Genossenschaft Migros Basel, Secretary to MD, Switzerland
Carla Edite Vieira, BA, MA, MBA, Msc
Kirchstrasse 130, 3084 Wabern, Switzerland
Tel. 0041 31 961 04 69 Mobile: 0041 78 774 18 67 E-mail: carlaedite@hotmail.com
Languages
and
Diplomas
Mother
tongues German,
Portuguese
Fluent English
Cambridge Proficiency
Fluent
French
Diplôme
d'Alliance
Française
Supérieur
Fluent Spanish
Diploma Superior de Español, Universidad de Salamanca
Fluent Italian
Certificato della lingua Italiana, Perugia, highest level
Basic Japanese
Japanese Certificate, Eurocenter Kanazawa, Japan
LSI
Certificate,
Bochum,
Germany
Basic Chinese
Chinese Language Diplomas, Beijing Language and Culture
University (basic level)
Basic Korean
LSI Certificate, Bochum, Germany
Continuous
education
November 2003
Jurisprudence for non-jurists, RZW
January 2003
Project Management course, Philo Nova
Personal
details
Date
of
birth
19
January
1972
Place
of
birth
Basle
Nationality
Swiss/Portuguese
Marital
status
Single
Study
Abroad
May July 2002
Beijing Language and Culture University, China
to
study
Chinese
and
business
July August 1999
Beijing Language and Culture University, China
to study Chinese and do primary research for my MA
dissertation on the Marketing of Banking Services in China
December `97 January 1998
Beijing Language and Culture University, China
to Study Chinese
September October 1997
Eurocenter Kanazawa, Japan
to study Japanese language, culture and business
Hobbies
Dip.
Lehrerin
für
Autogenes- und Mentaltraining, IBW
Dip.
Yoga
Lehrerin,
IBW
Dip.
Indian
Head
Massage,
Kevala
The Marketing of Banking Services in China
i
Abstract
Generally speaking, economic growth is closely related to the efficiency of a
country's financial markets. That is, the more varied the investment
alternatives by which economic resources can flow within a country and
between countries, the more efficient the financial market. This efficiency
leads to a higher level of capital formation, and improved capital utilisation,
thereby increasing the utility of both savers and borrowers and promoting
economic growth. In line with its transition to a market economy China has,
amongst other reforms, embarked on a reform of its financial system,
transforming its one-bank monopoly into an integrated system of many banks
and other specialised financial institutions. The resulting market complexity
and the emergence of domestic and international competition gave rise to the
marketing of financial services in China.
Despite banks' increasing marketing sophistication and higher spending on
marketing, consumer behaviour is only beginning to react to it. On one hand
the emergence of a wide variety of financial institutions and financial
products has offset the impact of the social system reform on individuals'
lives. On the other hand, most Chinese still stay with one of the four wholly
state-owned commercial banks, perhaps out of habit, perhaps from a feeling
of security with their old banks.
The effect on banks has been dramatic, service levels have improved greatly
while product quality and variety have become better. However, the lack of
market segmentation, partly due to government regulation, limits banks'
The Marketing of Banking Services in China
ii
abilities to effectively target consumer groups, (which also hinders
consumers' information gathering and decision-making).
Transformation of banking is hindered by China's poorly performing
corporate sector, which strongly undermines banking profitability. China
remains one of the weakest countries in terms of strength of the financial
sector (Moody's), and the imminent WTO entry might result in disarray in
the financial industry. Foreign banks with their sophisticated marketing have
already put strong pressure on their Chinese counterparts, who are learning
quickly. In the long run, the WTO entry and increased openness of the
financial market will increase the competitiveness of the marketplace and
enhance the development of the marketing of financial services in China.
The Marketing of Banking Services in China
iii
Acknowledgements
The core of the dissertation is based on primary research. It would have been
impossible to write this paper without the help of the following people whom
I want to thank for their co-operation and support.
Acknowledgements go to:
Zhang Gang (Deputy General Manager Norinco, North China Industries) for
having arranged many interviews and helping me with the research, Liu
Liange (Chief Representative, Senior Economist PBOC), for providing many
introductions and ideas, He Ziyuan (Lecturer Finance&Banking Institute of
China), Dr. Urs Buchmann (Chief representative and Managing Director
CS/First Boston) and Kang Zhe (Chief Treasury Officer CS/First Boston,
Herbert Poenisch (Joint Vienna Institute/BIS), Rolf Berweger (Head
Corporate & Institutional Banking Standard Chartered), Juerg Reichen
(Deputy Head International Banking) and Liu Zhiqin (Chief representative)
Zuercher Kantonalbank, Nancy Zhang (Manager financial institutions
Citibank), Dr.Jing Linbo (Lecturer CASS Institute of Finance and Trade
Economics Beijing), Ye Xiaopeng (Project Manager Guangdong
Development Bank), Wang Lijing (Deputy Director) and Zhou Xiaoming
(Financial Manager) Norinco, North China Industries and all other people
who I could interview and last but not least to my supervisor Dag Bennett for
his support.
The Marketing of Banking Services in China
iv
Table of contents
Abstract page i-ii
Acknowledgements
iii
Introduction
1-3
Methodology
3-4
Part I
Chapter 1: China's transition to a market economy
5-6
1.1 Implications
for
Marketing
6-7
Chapter 2: Recent
major
reforms
7-7
2.1
Reform of the social security system
7-10
2.2
Tax reform
10-11
2.3
Accountancy
reform 11-11
Chapter 3: China's
enterprises
11-16
Chapter 4: China's
economy
today
16-18
Chapter 5: Reform of China's financial system
18-19
Chapter 6: China's
financial
institutions
19-19
6.1.
The Peoples Bank of China
19-21
6.2
Non Bank Financial institutions
21-22
6.2.1
Co-operative
financial
institutions
22-22
6.2.2
Financial
leasing
companies
23-23
6.2.3
Rating
companies
23-23
6.2.4
Postal
savings
23-24
6.2.5
Property
trading
companies
24-25
6.2.6
Pawnshops
25-27
6.2.7
Insurance
27-28
6.2.8
Trust and Investment companies
29-30
6.2.9
The
securities
market
30-34
Chapter 7: Banks
34-34
7.1
Policy
Banks 34-34
7.2
Wholly
state-owned
banks
35-36
7.3
Commercial
banks
37-39
7.4
Banking
legislation
39-41
The Marketing of Banking Services in China
v
7.5
Banking legislation for foreign banks
41-42
7.6
Foreign
banks
42-44
Chapter 8: China's accession to the WTO
44-47
8.1 Impact on financial sector
45-46
8.2 Impact
on
Marketing 47-47
Chapter 9: Summary of the first part
47-48
Part II
Chapter 10: Marketing of financial services of Chinese Banks 49-49
10.1.Financial
products 49-51
10.2
Price
52-52
10.3
Place
52-53
10.4
Promotion
53-54
10.5
Processes
54-55
10.6
Physical
evidence
55-55
10.7
People
56-56
Chapter 11: Relationship Building (guanxi)
56-57
Chapter 12: Branding 58-59
Chapter 13: Segmentation
59-60
Chapter 14: Marketing of foreign financial institutions
60-60
Chapter 15: Survey
results
61-61
15.1
Foreign individuals living in China
61-61
15.2
Corporate
clients
61-64
15.3
Retail
clients
64-71
Chapter 16: Summary
of
findings
71-73
Chapter 17: Conclusion
73-76
Bibliography
77-87
The Marketing of Banking Services in China
1
Introduction
Since its market-based reforms China has attracted the biggest amount of FDI
and become the most sought after market for foreign exporters, which have
helped fuel the growth of China's economy. While some foreign firms are on
the retreat because of China's difficult market others especially those
companies active in the service sector are still investing with the
expectation of high future returns. Given that the tertiary sector is most
developed in the western economies and they have a competitive advantage
in respect to their Chinese counterparts, their great interest is understandable.
This is especially true for the financial market, which was underdeveloped
and is just now coming into a period of rapid growth. However, given the
protective attitude of the Chinese government towards the financial industry,
whose contribution is critical to China's growth, foreign financial institutions
have very restricted access to China's financial market.
A well functioning financial market with a strong and well-developed
banking sector is of the utmost importance to a country's economic
development and stability. Since banks' are the intermediaries, which
channel individuals' savings into the most productive areas in the corporate
sector, they have a large role in both economic growth and maximisation of
returns for depositors. Currently China's restricted and strongly regulated
financial market produces artificially low returns on individuals' savings. Nor
may those savings be channelled through the inter-bank market to countries
such as the US where they would yield higher returns.
The Marketing of Banking Services in China
2
A further factor contributing to low returns is the under performance of
China's corporate sector, which translates into banks having to support the
domestic industry despite potential returns being higher abroad. Given banks'
compulsory concentration on the domestic market, marketing is becoming
critical for banks as well as the whole financial sector and therefore
ultimately to the economy.
Marketing of financial services increases consumers' awareness of
investment possibilities, thereby helping them to make the right choices.
Moreover the introduction of marketing tools leads to higher service quality,
increases the variety of financial products and has a positive impact on the
sophistication of the banking sector. In order to better target their customers,
banks need to find out about their behaviour in regard to financial products.
This is not only of interest to banks, but also to the government or the
Central Bank since a deep knowledge of this subject is required for
implementation of monetary policy.
This dissertation will be divided into two parts. In the first part I will be
talking about China's transition to a market economy, major reforms and
their effects and about China's economy today. First I will address the major
outside forces which have a direct impact on the profitability of each banking
segment and about the PBOC and its function. This will be followed by an
overview of China's financial industry so that the reader has a better
understanding of the alternative choices Chinese consumers have. The main
weight is on domestic and foreign banks and their role for the corporate
sector and the economy. In addition to that I will be talking about the WTO
The Marketing of Banking Services in China
3
accession and the impact on the financial sector and marketing. In the second
part I will survey Chinese and foreign banks' marketing activities. From there
I will analyse Chinese consumer behaviour in regard to financial products
and will end with a summary of the findings and the conclusion.
Methodology
Since the Asian financial crisis, much thought has been given to these
countries' financial systems and why the crisis has not spread over to China.
There is quite a lot published about China's financial sector and its reforms.
However, almost nothing has been published about the marketing of financial
services in China. Or maybe there is but only in Chinese. I at least have only
found one article in China Daily. Therefore I went to China to do primary
research. Firstly I did exploratory research by visiting several foreign
countries' representative offices in China, which contributed a lot to my
background understanding. I also had the opportunity to talk to individuals
working at Chinese banks so that I could gain deeper insight into the Chinese
banking world. Furthermore I could also talk to lecturers and experts in the
field of China's financial sector which further enhanced my knowledge (all
the people whose help I could count on and their respective institutions are
mentioned in the acknowledgements part).
With background knowledge on the main issues for marketing of banking in
China, I drafted 3 questionnaires to probe specific issues further (see
Appendix 1); one for banks 5 of 12 were completed , one for export
orientated enterprises of which 10 were completed , and one for individual
The Marketing of Banking Services in China
4
consumers, who were divided into several different "strata. From the 100
questionnaires 30 were filled out by people in management who have some
knowledge of the financial industry, 5 by experts in the field. Another 15
were filled out by young and middle aged people, another 15 were filled out
by academics at the Beijing University for foreign language and culture, and
another 15 were filled out by shop owners. The last 20 were filled out by
people intercepted on the street. Tabulated results can be found in the
Appendix 1.
These results are descriptive, but are not conclusive. The limitations of time
and money resulted in limited research designed to illustrate a subject, which
is clearly in a developmental state. This project attempted to gather mostly
qualitative information, primarily from experts in the field, to create a picture
of the current situation.
The Marketing of Banking Services in China
5
1. China's transition to a market economy
From the time of the accession of Mao Zedong in the 1950's until almost the
end of the 1970's, China lived under a "purely" planned economy with all
factors of production belonging to the state. Enterprises had no incentives to
produce efficiently and therefore China remained a sluggish backward
economy for almost 3 decades. It wasn't until 1978 under the leadership of
Deng Xiaopeng that China embarked on a major reform of government and
economy. The reform began in the countryside with farmers getting
remuneration based on their household production, later further incentives to
produce more, and finally, liberalised prices on agricultural products
followed. To accelerate economic development, foreign capital was urgently
needed so that in 1980 China established special economic zones in Shenzen,
Zhuai, Shantou, Guangdong, Xiamen and Fujien and later declared the whole
Hainan province a special economic zone. Over the years China established
13 special economic zones, which give preferential conditions to foreign
firms entering the Chinese market. These zones have had on average a GDP
growth rate of over 10% per year. In 1984 the economic reforms entered an
urban stage, which kept public ownership as the predominant form of
property but industrial enterprises were given more independent decision-
making power and management responsibility and pilot shareholding systems
were introduced. Moreover, to encourage foreign trade, import and export tax
cuts were effectuated on a whole range of commodities. With foreign capital
flowing in and rapid growth, demand for the RMB soared and it became
obvious that China's financial structure had to be reformed to sustain the
impetus for development and to improve control over foreign exchange.
The Marketing of Banking Services in China
6
In 1993 at the third Plenary Session of the Central Committee it was decided
that the reforms started previously would be deepened and that laws and rules
sustaining China's transition to a market economy should be developed. Five
years later at the 1
st
session of the 9
th
NPC it was decided that the reforms
should further be enhanced, especially to improve the "soundness" of the
financial industry and let it play a bigger role in the reform of the SOE's.
Moreover it was decided that government expenditure should be cut back.
China has been very successful in transforming and developing its economy.
From 1979-1997 China has attracted US$ 347,94bn foreign capital, of which
220,18bn were FDI. Up to 1997 more than 300'000 joint ventures were
established and the trade value amounted to US$ 325.06bn. By the end of
June 1998 China had foreign exchange reserves of US$ 140.5bn, the second
largest in the world after Japan.
1.1 Implications for marketing
Under a planned economy enterprises all belong to the state so there is no
real competition amongst them. Furthermore China was producing mainly
industrial goods and consumers' demand for the existing goods was very low.
Marketing therefore had no importance for Chinese enterprises. It was only in
1978 that marketing came to China with a translation of Philip Kotler's book.
Marketing knowledge spread slowly, in 1984 the first joint-venture MBA
project between Dalian University and an American University was set up
and from then on marketing was also taught at Chinese colleges. In 1991
The Marketing of Banking Services in China
7
marketing was amongst the subjects studied for the first Chinese MBA.
However, today there are still no books by Chinese authors on the subject and
books used at University are almost exclusively Prentice Hall translations.
Marketing knowledge has also been transferred from foreign companies to
domestic companies through joint ventures. Since communist values are not
really compatible with "service mindedness" the marketing of services has
been especially neglected.
2. Recent major reforms
As part of the transition to a market economy and to enhance economic
development China has recently introduced several important reforms, which
have had an impact on the financial industry.
2.1 Reform of the social security system
Under a planned economy the state provides all services related to social
security such as healthcare, education, pension and unemployment
compensation. However, in line with the transition to a market economy
China is cutting back on welfare "services", forcing people to become more
self-reliant. Though China started housing reform 10 years ago, until recently
employees of state-owned enterprises got their apartments from their
employers. Moreover employees only had to pay 1 yuan (US$0.12) per
square meter for their housing. According to the law passed on 1 July 1998,
Chinese can no longer rely on the state for housing, which will be privatised.
The plan is to gradually raise rents to a market level and also to sell flats at
market prices to state-employees. According to an article in China Daily, all
The Marketing of Banking Services in China
8
cities will be forced to open up a secondary market, in which "state-owned
flats" can be sold or traded for more spacious or convenient ones. Further
incentives to potential customers include; a substantial cut in property taxes
and those related to transactions, simplified administrative procedures, and
reduced fees for housing purchases. In addition since banks play an important
role in the implementation of the housing reform they have been told to be
less restrictive with mortgage lending, to lower the criteria for loan applicants
and to simplify the loan application system.
The pension system is going through significant changes too. Currently
employees contribute to the financing of retired people, so funds flow from
contributors to beneficiaries. With a soaring retired population, this system
needs a strong economy in order not to run deficits. However, demographers
predict that the ageing problem will peak in 2030 when more than one
quarter of the world's elderly will live in China. To mitigate this problem the
traditional pension system will be complemented or in the long run replaced
with a personal savings insurance system. Moreover, employees now must
contribute half of what was previously paid by employers (Appendix2). This
led to more financial products related to retirement being sought, which has
benefited both banks and insurance companies.
Unemployment compensation is another problem government has to tackle.
Prior to China's transition to a market economy the unemployment rate was
virtually nil, but with restructuring of state-owned enterprises, redundancy
and massive lay-offs are expected. The unemployment rate is currently
The Marketing of Banking Services in China
9
between 3-8% depending on the provinces, but has been on the rise in Beijing
and coastal areas, where the absorption of unemployment from other areas
has slowed. Though workers currently receive unemployment compensation
from the local government, the government is pushing them to become more
self-reliant and buy insurance to have a complementary income to the state
contribution, which is quite low. According to an article in China Daily in
fact there has been a steady rise in demand for unemployment insurance,
especially of employees working for non-state owned companies and the self-
employed, this has considerably contributed to the profits of insurance
companies.
Health care has been free of charge until recently, when individuals were
made to contribute a certain percentage. However, given that the healthcare
provided by the state is rather "basic" and of poor quality, more and more
people, especially those in urban areas, buy their own healthcare insurance.
Now, in an effort to raise China's medical standards, the government is
introducing measures to promote the private healthcare market. One way of
doing this is by giving incentives to buy healthcare insurance, which in turn
enhances the "sophistication" of the market. Once again insurance firms have
benefited.
Education is another "service" that is gradually being privatised. Until the
end of high school there are no fees but from then on students are required to
pay fees, the amount depending on the University attended. Furthermore the
The Marketing of Banking Services in China
10
government is reforming education by giving educational institutions more
autonomy and responsibility in managing their funds. Moreover they are
pushing Universities to higher teaching quality by hiring lecturers from
abroad. In addition they promote setting up joint-venture educational
institutions to profit from the spill-over effects arising from the transfer of
knowledge coming from abroad. According to an article in Beijing Review,
demand for higher education is so high that the country will experience a
rapid increase of private institutions reliant on student fees and charitable
contributions. Many parents today save money to send their children to the
best higher schools. Education is very important to Chinese since it is a
cultural trait based on Confucianism. In addition, requests for loans to study
abroad have increased steadily and the government has ordered banks to give
more loans for educational purposes.
2.2 Tax reform
Prior to June 1983 China had no tax system. All income of enterprises was
transferred either to the central or local financial departments in the form of
profits. In 1994 China reformed its enterprise income tax, domestic
enterprises were to pay 33% of the proportional tax rate, with small
enterprises enjoying preferential tax rates (18-27%), foreign funded
enterprises were subject to a 30% proportional tax rate and 3% local tax.
China is now trying to bring taxation to international standards to enhance the
development of China's corporate sector.
1
Should this happen enterprises will
have other incentives regarding investment. Moreover the lack of qualified
personnel having experience in international taxation systems will lead to
1
China Day 1998, government publication, no author nor editor mentioned
The Marketing of Banking Services in China
11
some enterprises going to foreign accountancy firms and investment banks
for advice.
2.3 Accountancy reform
According to an article in China Daily the government is currently
accelerating the reform of its accounting system to improve the quality of
work and the openness of accounting information. The amendments in the
accountancy law should lead to an improvement in the supervision of
accountants and to a clarification of their legal responsibility. The law makes
fraudulent accounting a punishable crime. This has often been practised by
enterprises to conceal their debt/equity ratio and overall value of assets,
which makes credit assessment very difficult for banks and thus contributed
to the increase in banks' bad loan ratio. Moreover it has a negative impact on
investments from abroad since foreign investors find it difficult to interpret
domestic enterprises' financial statements. This August the government
issued nine enterprise accounting codes and another 33 will be issued by the
year 2003. These should help banks to assess creditworthiness and help
attract more foreign investment.
3. China's enterprises
The reform of state owned enterprises and the promotion of privately owned
businesses was an important step in China's transition to a market economy.
Managers of state-owned enterprises (SOE's) had no incentive to generate
profits, since neither their job nor their salary was at stake. Moreover
according to China's bankruptcy law, SOE's could never go bankrupt; should
The Marketing of Banking Services in China
12
they be in the red, the government would simply take over their debts and
subsidise their production. A further impediment to performance was their
social burden (housing, health care, etc.). Given their bad management,
which is partly their fault and partly due to the circumstances, they did not
generate enough revenues and had to rely on bank loans to finance their
business operations.
The government ordered banks to give loans to these enterprises, knowing a
priori they would be unrecoverable. Over the years banks accumulated a high
amount of bad loans. To both strengthen enterprises' performance and take
off the burden from the state-owned banks Zhu Rongji is pushing through a
radical reform of the corporate sector. SOE's must balance their books within
3 years and in the 1
st
Session of the 9
th
NPC it was decided that the SOE's
reforms should be done through good management of large enterprises while
control over small ones should be relaxed. To get rid of non-performing
companies the following measures should be taken; association, merger,
leasing, contract operation, the joint stock co-operative system or sell off
2
.
Actually several provinces are trying to get rid of their small non-performing
enterprises by selling them off to foreign investors, though there seems to be
little interest on their part. Furthermore the government intends to standardise
bankruptcy procedures and increase efficiency by downsizing staff as well as
encouraging financing through the stock market and the merging of listed
companies with those companies going through temporary financial
difficulties. Despite these resolutions a year later there are still few lay-offs,
2
The First Session of the Ninth National People's Congress, Main Documents 1998,
Foreign Language Press (no author mentioned)
The Marketing of Banking Services in China
13
few non-performing companies have been shut down and funds are still
flowing into non-productive areas. Between 1991-1996 SOE's generated an
annual increase in added value of 15.53% but in 1997 added value generated
by those enterprises was only 4.4%. In addition the industrial SOE's profits
have declined from 6% to less than 1% in recent years. Yet these enterprises
still absorb more than three-fourths of domestic banks' funds. Even worse
SOE's demand for credit crowds out investment by non-state firms, which
have been the engine of China's economic growth. Not only have the
reforms not brought about the expected outcome but have also led to such
problems as asset stripping, decapitalisation, wage manipulation and tax
evasion
3
. As G. Broadman, a senior economist at World Bank points out,
these problems not only threaten the objectives of China's enterprise reform,
but by spilling over to the financial sector, also jeopardise critical elements of
the overall economic reform program.
As the government is starting to realise that small businesses play a big role
in the absorption of SOE's laid off workers and in economic growth the
PBOC has recently passed a decree by which small and medium sized
enterprises have the same right to funds as state-owned companies. It has
designated China Minsheng bank as the bank responsible for loans to SME
and encouraged credit co-operatives and city commercial banks to play a
bigger role in their financing. However, banks are still reluctant to give loans
to those companies because they have low credit worthiness and do not meet
the necessary financing criteria. Even the setting up of a collateral institution
3
Harry G. Broadman, The Chinese state as a corporate shareholder,
IMF quarterly magazine, September 1999
The Marketing of Banking Services in China
14
to provide bank guarantees for those enterprises did not help to change
banks' attitudes. According to an article by Kazuyoshi Uehara, Professor at
Kyoto University, medium and small sized enterprises in China provide 75%
employment opportunities in urban areas. They are responsible for 77% of
the increase in total industrial production since the beginning of the 90s and
account for 60% of the US$150bn generated from exports each year. Total
production of medium and small sized enterprises account for 60% of
production nation-wide, while their profits and taxes account for 40% of the
national total. Privately-run businesses account for 78% of all medium- and
small enterprises, while group enterprises account for 20%, SOE's account
for 1.4% and foreign-owned enterprises account for 0.6%.
Realising that entrepreneurs play an important role in the economy China has
passed legislation protecting the rights of mainland entrepreneurs. The law
comes into effect on 1 January 2000 and aims to regulate the country's
1.26bn private enterprises. However, many entrepreneurs say they can't take
this seriously (Southchina Morning Post) and that in the immediate future
there will be no improvements to their status. Moreover officials announced
that privately run businesses will enjoy the same rights as SOE's in the
raising of funds through listings at both domestic and international stock
markets. But it is unlikely that they will find listing an adequate means for
raising funds; investors are only willing to take on high risk if they get a high
yield, and it is unlikely that entrepreneurs can generate high dividends.
Moreover, going to the stock market is expensive, therefore they really
depend on banks and credit co-operatives.
Details
- Seiten
- Erscheinungsform
- Originalausgabe
- Jahr
- 1999
- ISBN (eBook)
- 9783832486785
- ISBN (Paperback)
- 9783838686783
- DOI
- 10.3239/9783832486785
- Dateigröße
- 759 KB
- Sprache
- Englisch
- Institution / Hochschule
- South Bank University London – Business, Computing and Information Management
- Erscheinungsdatum
- 2005 (April)
- Note
- 2,5
- Schlagworte
- china
