Boosting China’s financial services

By Aoife White

Date: 16/06/05

The first time Ian Radcliffe of the European Savings Banks Group (ESBG) went to Beijing the city was full of bicycles. That was two and a half years ago. On his last trip, the city's streets were packed with cars.

China's rapidly growing economy has introduced some free market elements into its state-controlled markets. One of the most important tasks it faces is to develop its banking, insurance and securities markets, a job it is doing with EU help.

Radcliffe heads the EU-China financial services co-operation project, a three-year plan to take European advice to the world's most populous country. It gives policy advice and is setting up a professional accreditation system. It also offers Chinese officials high-level access to EU and national regulators.

China's banking system is dominated by a state-owned Gang of Four: the Agricultural Bank, the Bank of China, the Industrial and Commercial Bank of China (ISBC) and the Construction Bank. Unlike Europe, banks have little autonomy and do not always operate according to usual market practices found in the West. A particular problem for economists is the country's reliance on non-performing loans, a form of state subsidy to manufacturing industries.

Joining the World Trade Organization in 2001 meant that China committed itself to reforming its financial sector and opening it up to foreign competition.

Chinese interest in European financial regulation does not necessarily mean the country is following a European model, says Radcliffe. But Europe's eight ex-communist states have a lot to teach it about moving from a planned centralised economy to a market-based system.

Chinese officials have visited the European Central Bank in Frankfurt to hear about different European experiences of setting up an independent central bank. A group came to Brussels on Monday (13 June) to hear from the European Commission and the ESBG on the EU's legal framework for financial holding companies. They then headed to London for meetings with the Bank of England, the Committee of European Banking Supervisors and the Financial Services Authority, and Rome to see the Banca d'Italia.

Radcliffe insists that the Chinese have the last say in the programme. The details of the seminars are agreed at a high level, a practice now usual for foreign development programmes. "Everything in China is political," he says. Regulators make their wishes known and the banking sector follows suit.

The project has important knock-on effects for European firms. The ESBG and its partners borrow experts from European financial companies and take them to China for seminars with local officials. Most major European banks and insurance players are eager to gain a foothold in China and many have opened offices in Beijing or Shanghai. Lending an expert allows them make valuable contacts and acquire local knowledge that may prove useful to the company.

One example is the European Savings Banks Financial Services (Eufiserv), a payment processing company, which became the first European partner for China UnionPay, the country's only national bankcard payment network with a massive 700 million cards. The agreement allows all these cardholders to use Eufiserv's ATM machines in 12 European countries. Since Europe could see as many as 100 million Chinese tourists by 2020, according to WTO estimates, the agreement may prove to be a gold-mine.

Article looks at the state of China's financial services sector and co-operation with the EU on financial regulation.