Chinese Banking Supervision

Chinese banking supervision has undergone significant institutional reform, culminating in the establishment of the National Financial Regulatory Administration (NFRA) in 2023, which replaced the former China Banking and Insurance Regulatory Commission (CBIRC). The NFRA exercises comprehensive supervision over the banking and insurance sectors, licensed financial institutions, and an expanding range of financial activities.

The National Financial Regulatory Administration

The NFRA was established in March 2023 as part of a major restructuring of China’s financial regulatory architecture. The NFRA absorbed the regulatory functions of the CBIRC and certain functions previously exercised by the PBOC, including consumer financial protection. The NFRA reports directly to the State Council and operates through provincial and local branches.

The NFRA’s mandate includes: licensing and supervision of banking and insurance institutions; regulation of financial markets and products; consumer financial protection; enforcement of prudential standards; resolution of troubled institutions; and international regulatory cooperation. The NFRA’s establishment was designed to eliminate regulatory gaps and overlaps that had characterized the previous multi-agency system.

Banking Regulation Law

The Banking Regulation Law (Yinhangye Jiandu Guanli Fa, 银行业监督管理法), enacted in 2003 and amended in 2006, provides the legal framework for banking supervision. The law empowers the banking regulator to license financial institutions, set prudential requirements, conduct on-site and off-site supervision, impose enforcement measures, and resolve failed institutions.

The law establishes licensing requirements for banking institutions, including minimum capital requirements, qualified management, and appropriate business plans. Licensed activities include taking deposits, granting loans, settlement services, and other financial services as specified. Foreign banks are licensed under separate regulations, which have been progressively liberalized since China’s WTO accession.

Licensed Banks

China’s banking system comprises several categories of licensed institutions. Large commercial banks (da xing shangye yinhang) include the Big Four state-owned banks: Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC), and Bank of China (BOC), along with the Bank of Communications. Joint-stock commercial banks include China Merchants Bank, Shanghai Pudong Development Bank, CITIC Bank, and others. City commercial banks operate within specific municipalities, and rural commercial banks serve agricultural and rural communities.

The banking sector is dominated by state-owned banks, which hold approximately 40% of total banking assets. Policy banks — China Development Bank, Export-Import Bank of China, and Agricultural Development Bank of China — provide policy-directed lending in infrastructure, trade, and agriculture. The sector also includes foreign bank branches and locally-incorporated foreign banks.

Shadow Banking Regulation

China’s shadow banking system — credit intermediation outside the traditional banking system — has been a significant focus of regulatory attention. Shadow banking activities include wealth management products (licai, 理财), trust loans, entrusted loans, and off-balance-sheet financing. These activities grew rapidly from 2008 to 2017, reaching an estimated RMB 100 trillion at their peak.

Regulatory response included the New Asset Management Regulations (2018), which restricted the offering of wealth management products with guaranteed returns, prohibited maturity mismatching, and required asset management products to operate on a net asset value basis. The CBIRC and PBOC also imposed restrictions on interbank wealth management products, channel financing, and other forms of shadow banking. Shadow banking assets have declined significantly since 2018, though new forms continue to emerge.

Wealth Management Products (Licai)

Wealth management products (licai chanpin, WMPs) are investment products offered by commercial banks that invest in bonds, money market instruments, and other assets. WMPs were historically offered with implicit guarantees of principal and return, creating contingent liabilities for banks and systemic risk.

Regulation of WMPs has been progressively tightened. Banks must now offer WMPs through separate asset management subsidiaries (licai zigongsi), ensuring that WMPs are not guaranteed by the bank’s balance sheet. WMPs must be sold on a net asset value basis with transparent valuation. Non-standard debt investments by WMPs are subject to limits. These reforms have reduced the systemic risk associated with WMPs while preserving their role as investment products.

NPL Resolution

China’s non-performing loan (NPL) resolution system involves multiple mechanisms. Banks manage NPLs through internal workout, debt restructuring, and write-offs. Asset management companies (AMCs) — including four national AMCs (Cinda, Huarong, Great Wall, Orient) and numerous local AMCs — purchase NPL portfolios from banks at negotiated prices.

The AMC system was established in 1999 to resolve NPLs from state-owned banks. AMCs operate under NFRA supervision and may acquire, manage, and dispose of distressed assets through restructuring, litigation, and asset sales. The NPL resolution framework also includes debt-equity swaps (zhai zhuan gu), which allow banks or AMCs to convert debt claims into equity stakes in distressed companies. The NPL resolution system has been tested by increasing corporate distress and remains a significant focus of financial stability policy.