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5.2.4 Organizational restructuring

Since 1998, the government implemented the restructuring program. The banks have been required to improve organizational management efficiency. The government closed some non-profit financial institutions, for example, the number of the investment trust companies declined from 240 in 1997 to 60 at the end of 2002. Some of urban credit cooperatives were merged and transformed into “City United Commercial Banks’ (CUCBs) In the same time, some banks reducing some numbers of network and branches, they also changed the long-term contract employees to the short-term contract employees, and reduce the number of low-skills employees. For example, the SOCBs merged provincial and municipal branches, between 1998 and 2002, the number of branches and employees fell by 45.7%, and 16.2% (China’s Finance and banking, 1986-2003) these ways should have contributed to increase banks’ profitability.

5.2.5 Public Listing

After 2000, the government encouraging commercial banks to go public. The China Merchants Bank is the first share-holding commercial bank. Which launched IPO with the issuance of 1.5 billon common shares in March 2002, and was successful listed in Shanghai Stock Exchange. (Zhou 2006) from 2005 to 2007, the BOCOM, CCB, BOC and ICBC were listed on stock exchanges. The government need SOCBs use the overseas market to recognized the market pressures, make stronger than before. So the first IPOs were carried out in Hong Kong, however, it is limited the domestic investors have chance to invest into SOCBs, the government decided to list BOC and ICBC in Hong Kong and Shanghai. 

Table 9 Total Capital Increase by IPOs (RMB billion)

bank Total Capital Selling Price Per Share Proceeds from IPO Including Issuance Cost Share Capital

Increased Capital Reserve Increased % of Total Capital Increased by IPOs

ICBC 326.2 (2006) HK 3.07

RMB 3.12 Total 173.3 47.5 97.1 44.3

BOC 233.8 (2005) HK 2.95

RMB 3.08 Total

110.0 35.9 71.1 45.8

CCB 200.9(2005) HK 2.35

74.6 30.5 42.1 36.1

BOCOM 52.1 (2004) HK 2.50

RMB 7.90 Total 43.2 9.9 32.3 80.9

Source: Annual report and prospectus for Hong Kong IPOs of each bank and Shanghai Stock Exchange.

The IPOs were welcomed by the markets, because selling prices was low and the capital of the banks increased 30 to 80 percent. (see Table 9), when the banks go public, the transparency have increased. The banks invited foreign accounting offices to review their financial reports, such as balance sheets, profit and loss accounts, and cash flow statement. Now, the financial reports of the Chinese banks are much clear and much faster than before.

5.3 Current domestic banking structure 

5.3.1 China’s Central bank and China banking regulatory commission

In Chinese banking sector, the People’s Bank of China (PBC) is China’s central bank. It implements monetary policy, and maintains the payment of the banking sector, clearing and settlement systems, manages official foreign exchange and gold reserves. On April 28, 2003, the government launched China Banking Regulatory Commission, the objective of this commission is take over the supervisory of the PBC, help the PBC to further focus on the macro economy and currency policy.

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