This study is mostly connected with an examination of Mainland China’s banking reforms since 1978. Part of the study surveys the background of reform and finds that Mainland China’s leaders have gradually recognized that the domestic banking system can play an important role in economic development. It was their aim to set up a new socialist banking system with Chinese characteristics. In such a system, banks would become an important intermediary linking state planners with economic units in a more decentralized economy in which economic levers would play a growing role in guiding state planning.
In order to transform the role of banks in the Chinese economy and increase the banks power, many reforms have been implemented in recent years. These reforms have concentrated on the setting up of an indeal banking system, changing the channels by which funds are allocated to enterprises and improving the management inside the banks. In January 1985, the People’s Bank of China began to act as a central bank responsible for making monetary policy in order to control inflation and also for overseeing the work of specialized banks. In the new system, the central bank carried out overall macro-level monetary control by means of bank credit planning and interest and deposit reserve policies. The task of increasing micro-level efficiency has been assigned to specialized banks.
Traditionally, the Ministry of Finance provided virtually all the funds needed by enterprises for fixed capital investment in the form of grants. However this has recently changed, as it was decided that interest-bearing loans would replace fiscal appropriations in most sectors as of January 1, 1985. Only government departments, schools, and other nonproductive units are supposedly still eligible for interest-free budgetary funds. In another instance, the People’s Bank announced in 1983 that banks were to become the sole distributors of working capital funds to state enterprises. So loans have mostly replaced appropriations in economic fund allocation.
As the Chinese banking system moves towards gaining a higher status in the economy, it is however necessary to deal with improving the internal management of banks. So various schemes have been promoted to the quality of the banking staff through reeducation and training. In addition, local bank managers have had more opportunity to personally promote young and competent staff. It could help them to encourage their staff to increase their work efficiency.
From recent bank reforms, we are able to assert that banks have played an incresing role in economic activities which in turn will directly affect the success, or failure of the entire urban reform program. Although Mainland China has set a new banking system in operation, it is not mature yet. China’s banking activity will gradually adjust itself by a process of trail and error as time goes on.
