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How does the banking sector work in China? What are the main aspects of banking regulation there? This brief report will be useful for those planning to register a financial company or open a bank in China.
Mostly, banks in China are impressively large. Some are known to hold up to 20 trillion yuan in assets. Also, every bank in China is backed up by the government. The state would not let any bank go bankrupt when so many people have their savings there.
Nowadays it is almost impossible to find a jurisdiction that can provide both reliability and confidentiality. Yet, banks in China stay the same in this way. Even though there are some limiting agreements signed by China, it only acts according to them by a certain extend. Moreover, it can be especially hard to put pressure on Chinese banks unlike in other countries.
For banks in many countries including the ones from the USA, Europe, Hong Kong it is completely normal to inquire about who is the main beneficiary. Who is the real beneficiary of the company? The banks search thoroughly to find the specific individuals and dig for detailed information about them like the address of residence, sources of capital, occupation, and other facts.
As for the Chinese banks, they do not ask this question. The fact that they are not interested in this makes the whole procedure of opening an account in a Chinese bank much faster and easier. And it also increases the level of confidentiality.
Unlike Chinese banks, American and European have a tendency to freeze their customers’ accounts for reasons such as reinsurance or publication in the media. Afterward, it can be really time and effort-consuming to unfreeze the account, and the result does not have to be positive.
The banking sector of China is supervised by synchronic cooperation of government bodies like the People’s Bank of China, the China Banking and Insurance Regulatory Commission, and local governments. Among all the requirements banks must fulfill the laws and regulations about disclosure of information, equal treatment of customers, and fair business conduct. Since the goal of the PRC for this industry is to protect financial customers and financial security, Chinese and foreign banks have to comply with the rules.
According to Chinese law, financial institutions must also contribute to fighting against the legalization of illegal income. The investigation of illegal financial activity conducted by the NBK and international financial control authorities is dictated by legislative acts.
The bank itself and the managing staff can receive penalties if the regulatory audit finds out any violations.
Earlier, when the structure of the joint venture prevented foreign banks from having control, they could only own less than a third joint venture with Chinese partners. The global banks were limited from controlling operations, depositing, and withdrawing funds as well as decide on strategic goals. Also, it was problematic for foreign institutions to agree with Chinese partners on the number of joint venture employees and their salaries.
In modern days the situation is different as there are no more restrictions on the share for foreign investors. It had even become possible to establish a bank in China completely owned by foreigners. However, all activities of foreign financial institutions and their branches are strictly monitored. In fact, the law defines the minimum paid-in capital that must be maintained if the bank belongs to the foreign investor.
When it comes to purchasing a bank in China, foreign investors need to follow the PRC Administrative rules. This regulation is mostly revised from 2019.
Recent years saw the Chinese government become more positive and open-minded towards foreign investment. The quick development of the banking sector also leads to publishing new legislative acts. To navigate Chinese banking sector better, get in touch with specialists from COREDO. We will help you open a financial