Chinese Banking Law
The People’s Bank of China Law
The People’s Bank of China (PBOC) Law, adopted in 1995 and revised in 2003, establishes the PBOC as the central bank of the People’s Republic of China. The PBOC is charged with formulating and implementing monetary policy, maintaining financial stability, and providing financial services including the issuance of currency, the management of the payment and settlement system, and the administration of foreign exchange reserves. The PBOC operates under the leadership of the State Council, and its Governor is appointed by the National People’s Congress or its Standing Committee. The monetary policy tools available to the PBOC include reserve requirements, the rediscount rate, open market operations, and the benchmark lending and deposit rates.
The Banking Regulation Law and the NFRA
The Banking Regulation Law of 2003 established the China Banking Regulatory Commission (CBRC) as the dedicated supervisory authority for the banking sector. In April 2023, as part of a major institutional restructuring of the financial regulatory system, the CBRC was merged with the China Insurance Regulatory Commission to form the National Financial Regulatory Administration (NFRA). The NFRA is responsible for the regulation and supervision of all financial institutions except securities firms, including banks, insurance companies, financial holding companies, and consumer finance companies. The NFRA has powers of licensing, examination, enforcement, and resolution. Its mandate includes protecting the interests of depositors and policyholders and maintaining the stability of the financial system.
The Commercial Banking Law
The Commercial Banking Law of 1995, revised in 2015, governs the establishment, operation, and supervision of commercial banks in China. The law defines a commercial bank as an enterprise legal person that absorbs deposits from the public, grants loans, and provides other financial services. Commercial banks must operate under the principles of safety, liquidity, and profitability. The Law imposes prudential requirements including minimum registered capital of 1 billion RMB for a national commercial bank, 100 million RMB for a city commercial bank, and 50 million RMB for a rural commercial bank. Commercial banks are generally prohibited from engaging in securities trading, trust investment, or investment in non-bank financial institutions, maintaining the traditional separation between commercial and investment banking.
The Structure of the Chinese Banking System
The Chinese banking system is dominated by six large state-owned commercial banks: the Industrial and Commercial Bank of China (ICBC), the China Construction Bank (CCB), the Agricultural Bank of China (ABC), the Bank of China (BOC), the Bank of Communications, and the Postal Savings Bank of China. These banks account for a substantial share of total banking assets. Below them are 12 joint-stock commercial banks, numerous city commercial banks, rural commercial banks, and rural credit cooperatives. Three policy banks — the China Development Bank, the Agricultural Development Bank of China, and the Export-Import Bank of China — provide policy-directed lending in support of state priorities.
Deposit Insurance, Interest Rate Liberalisation and Shadow Banking
China introduced a deposit insurance system in 2015, protecting deposits of up to 500,000 RMB per depositor per bank. The system is administered by the PBOC and applies to all deposit-taking financial institutions. Interest rate liberalisation was substantially completed in 2015 when the PBOC removed the ceiling on deposit rates, although the PBOC continues to guide market rates through its medium-term lending facility and standing lending facility. Shadow banking, encompassing wealth management products, trust loans, and interbank lending, has been the subject of increasing regulatory attention, with the NFRA and PBOC imposing restrictions designed to curb systemic risks. The Anti-Money Laundering Law of 2006, revised in 2021, requires financial institutions to conduct customer due diligence, report large-value and suspicious transactions, and implement internal AML compliance programmes.