Chinese Banks and Their Contribution to the Global Economic Rise of China

In this thesis, we delve into the crucial role played by the Chinese banking sector in driving the country's economic growth. Our analysis takes a historical perspective building on and filling the gaps in existing literature on the banking sector in China and the West. Through this, we determine the extent to which Chinese banks have invested in the real economy or used their assets to finance it, thus contributing to the country’s economic rise since 1980. Thus, our study examines the investment policies and official statistics of various Chinese banks, including policy banks, state-owned commercial banks, joint-stock commercial banks, and foreign banks, over the last 20-30 years.

The ‘stagflation’ crisis played a pivotal role in accelerating China’s reform and opening-up process, Although the era of neo-liberal globalization and financialisation has created a downward spiral for the rate of profit of the real economic sector in Western countries, it has had the opposite effect on China’s economy, effectively promoting growth. Manufacturing and the financial market in China have witnessed significant growth while also facing multiple challenges.

Policy banks in China play a vital role in facilitating economic development by providing affordable loans to projects that require more appeal to commercial banks, including infrastructure, agriculture, exports, and overseas investments. They have a unique loan purpose and a strong motivation to connect with Belt and Road Initiative (BRI). State-owned banks account for more than 50% of loans and advances and have maintained a stable investment in financial assets, while the proportion of other assets has declined. The primary loan fields are manufacturing, transportation, warehousing, and postal industries. Conversely, joint-stock commercial banks tend to focus more on financing small and medium-sized enterprises and personal mortgage loans.

With China's entry into the WTO, foreign banks have played an important role in providing capital and expertise. The investment policies of Chinese commercial banks have also evolved, and the entry of foreign banks into the Chinese market has also brought competition to China's banking sectors, prompting the reform of Chinese local banks. Foreign banks have made significant contributions to China's banking strategy by providing modern banking services and helping to modernise the sector. Thus, this thesis also dwells on some normative matters, as it considers that China must establish a robust regulatory framework to ensure a rational development of its financial markets. China’s careful adherence to the Basel accords has also won the trust of China’s international investors and expanded China’s global influence. “Red” banks alone are not good enough. Some Western rationalisation is needed, although this thesis is not arguing for an adoption by China of Western ways of banking.

Our findings reveal that the Chinese banking sector has significantly contributed to the development of China's manufacturing industry, which has propelled the growth of the country's economy. Moreover, the Chinese banking sector has had a significant impact on China's international status, primarily due to financing the Belt and Road Initiative.