This study analyzes recent developments in the money and banking sector of the Mainland Chinese economy from the institutional and functional perspectives. To facilitate the goals of the new economic order money and banking structures have been changed significantly. For example, the Agricultural Bank was reestablished in February, 1978 for the fourth time, and the China Investment Bank was created in December, 1981. Moreover, at present the idea of creating a network of commercial and industrial banks as well as a central bank are under serious discussion.
Banking operations have also illustrated some recent, innovative developments. Banks have expanded operations through the issuance of medium and short term equipment loans. Another novel practice is that since 1979 individuals and cooperatives have become the emphasized recipients of loans. A third development is that banks are now permitted to handle commercial and trusts accounts. A final development is that banks are now charged with collecting financial and market information for the entire economy.
Conforming to the recent wave of decentralization in Mainland China, individual banks have been granted the freedom of deciding whether to grant a loan or not. Banks, however, are instructed to adhere to the principle of “differential treatment, support only the best.”
To summarize the results of the recent economic readjustment, banks in Mainland China will perform three functions: 1) an intermediary function of channeling savings into investments; 2) a micro-financial function of enhancing the efficiency of individual enterprises through the allocation of credit and the supervision of enterprise accounts; and 3) a macroeconomic function of controlling the money supply and maintaining monetary equilibrium. The first two functions will be carried out by various specialized banks, while the latter will be the concern of the People’s Bank of China.
