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People's Bank of China

 

            Restructuring the People's Bank of China.
            
             Our group decided to go a slightly different route with this assignment. Instead of reporting on an overhaul of an exchange, we chose to research the overhaul of the banking system of China. In January 1998, Dai Xianglong announced the plans to streamline China's overstaffed commercial banks and to wipe out billions of dollars of bad debt accumulated in these institutions. The People's Bank of China consisted of four large state-owned commercial banks: the Agricultural Bank of China, the Construction Bank, Bank of China, and Industrial and Commercial Bank of China. Together, these four state-owned establishments employed more than two million people, and each bank had at least 2400 branches.
             The Overhaul .
             The People's Bank of China's first step to improve the efficiency of the banking system was to close the provincial branches and set up a certain number of inter-provincial branches reporting directly to the central bank. These provincial institutions were inefficient and something had to be done. The government planned to step in and reform the management system, which would improve the independence and professionalism of the central bank.
             At this time China was experiencing a financial crisis. Their currency was being devalued, their stock market was on a decline, and the bad debt accumulated by the banking system was huge. The government estimated that more than 20% of China's state bank loans were non-performing (180 billion) and of this 20%, 5%-8% would never be recovered. To correct this problem, Dai doubled the funds available to write off bad debt to $6 billion (US) and further raised this number to $60-70 billion (US) in "99 and "00. .
             When China was admitted to the World Trade Organization it put immense pressure on the banking system. This is what eventually led to the overhaul and central control that we see today. The ultimate goal was to set up nine regional branches to tighten the central banks" control.


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