This Selected Issues paper analyzes state-owned enterprise (SOE) development and reform in China. The paper discusses the role of state ownership in the Chinese economy, providing a “snapshot” of key features of the state sector, and a review of the growth, efficiency, and profitability of SOEs. The paper argues that economic performance in SOEs has declined in the last few years as evidenced by falling profitability, increasing losses, growing industrial inventories, and low rates of capacity utilization in some sectors. The paper also examines banking sector development and policy issues in China.


This Selected Issues paper analyzes state-owned enterprise (SOE) development and reform in China. The paper discusses the role of state ownership in the Chinese economy, providing a “snapshot” of key features of the state sector, and a review of the growth, efficiency, and profitability of SOEs. The paper argues that economic performance in SOEs has declined in the last few years as evidenced by falling profitability, increasing losses, growing industrial inventories, and low rates of capacity utilization in some sectors. The paper also examines banking sector development and policy issues in China.

III. Banking Sector Development and Policy Issues1

A. Introduction

1. Over the past two decades, the banking sector has evolved from a monobank system to a two-tier system with several types of banking institutions. Reforms in recent years have sought to strengthen the commercial orientation of the banking system, which had played a central role in financing the state’s economic plan in the 1980s and early 1990s and continues to face pressures to lend to loss-making state enterprises.2

2. The authorities recognize that increasing the commercial orientation of the financial sector needs to be accompanied by intensified and redirected efforts in prudential supervision—which in the past had tended to focus on ensuring compliance with credit plan targets—and strengthening banks’ financial position. In this regard, accounting and provisioning rules are presently very weak, not only limiting the effectiveness of prudential supervision, but also making it difficult to assess the strength of the banking sector. Nevertheless, several indicators suggest a significant deterioration in banks’ financial position in recent years.

3. The chapter is organized as follows: section B outlines, from an institutional perspective, the evolution of the financial sector in China. The present regulatory framework for banking operations is described in section C. Section D provides an overview of banking supervision, while section E analyzes the financial position of the four state commercial banks, the largest institutions in the banking system. Concluding observations are included in section F.

B. Institutional Development

4. Until the start of the reform process in 1978, the main function of the banking system was to mobilize savings to complement the financing of the economic plan, for which most investment funds were allocated through budgetary grants.3 The People’s Bank of China (PBC) served as a “monobank,” and its specialized departments were responsible for the settlement of enterprises’ transactions, collection of household deposits, and administration of funds for working capital and short-term investment not covered by budgetary grants.

5. During the early years of reform (1978–83), a two-tier banking system was established with the PBC fulfilling the role of a central bank but continuing to perform some commercial operations. Two specialized banks—the People’s Construction Bank of China (PCBC) and the Bank of China (BOC)—which had previously operated as departments within the PBC, became independent banks specializing in the construction sector and foreign transactions, respectively. Another specialized bank, the Agricultural Bank of China (ABC), was established to take over the PBC’s rural banking business, and the number of rural credit cooperatives (RCCs)—which were set up to provide small-scale rural banking services—expanded rapidly. The first nonbank financial institutions (NBFIs) in China were also formed during the early 1980s.

6. The establishment of the two-tier banking system was accompanied by a shift in the allocation of investment funds from budgetary grants to bank loans. However, the banking system continued to serve as a conduit for implementing the central plan for physical output, and the financial viability of projects and their repayment capacity were not given primary consideration in lending decisions.

7. Continued financial reforms and development during the mid–1980s supported a further rise in the share of bank loans in the total investment financing of state enterprises. In 1983, the PBC was formally established as the central bank, and a fourth specialized bank—the Industrial and Commercial Bank of China (ICBC)—was created in 1984 to take over the PBC’s urban commercial operations. In subsequent years, urban credit cooperatives (UCCs) were set up to serve small individually or collectively owned enterprises. New banks were formed at the provincial level, and numerous NBFIs—including trust and investment companies (TICs), securities firms, finance companies, leasing companies, and insurance firms—were established. Measures were taken to enhance competition in the banking sector, including granting permission to the specialized banks to engage in operations outside their area of specialization; allowing banks to conduct foreign transactions; permitting the two new “nationwide” or “universal” commercial banks to compete with the specialized banks in all forms of business; and allowing foreign banks to open branches in special economic zones, albeit only for foreign trade-related operations. These financial reforms coincided with a further cut in budgetary support for state enterprises and an expansion in enterprises’ control over their after-tax profits, thereby boosting the importance of financial intermediation for enterprise operations.

8. During 1988–91, however, financial development slowed and, in certain areas, was reversed as a rectification program was introduced in the wake of a sharp recession and mounting inflationary pressures. Structural reforms were given lower priority than stabilization, and nascent indirect instruments of macroeconomic control were supplemented with administrative measures. As a result, the share of budgetary funds in investment financing rose as the role of directed credit expanded. The flexibility in setting interest rates within specified bands—which had been accorded to banks in the mid–1980s—was narrowed, and the specialization of the major banks was reasserted. In the NBFI sector, a number of TICs were closed or merged with the specialized banks.

9. In recent years growth in the number and type of financial institutions has resumed as the authorities have sought to gradually increase the commercial orientation of the financial sector. Laws on central and commercial banking have been enacted, and three policy banks4 were established in 1994 to take up the policy-directed lending activities5 of the specialized banks, which were redesignated as “state commercial banks.” Two additional nationwide commercial banks were licensed, along with six other commercial banks of regional significance and two “housing savings banks.” In addition, some of the UCCs and RCCs have been merged and consolidated into city and rural united banks, respectively. Foreign banks have been allowed to open branches in Shanghai and 13 other cities, and eight foreign bank branches were granted permission in early 1997 to engage in limited renminbi business.6 The growth in the number of nonbank financial institutions has been limited, however, as the authorities have sought to separate banking and nonbanking business and banks have been required to divest of their nonbank subsidiaries.7

10. At present, the financial intermediaries include the four state commercial banks, the policy banks, four nationwide banks, several other commercial banks, around 50,000 rural and 5,100 urban credit cooperatives, TICs, finance companies, securities firms, insurance companies, and leasing companies (Table III.1). As of end-1994, financial institutions employed 2.7 million workers in over 210,000 branches and offices, of which the state commercial banks accounted for around 1.6 million and 147,000, respectively.

Table III.1.

China: Financial Institutions’ Branches and Staff, 1990-94

(In thousands; end of year)

article image
Source: People’s Bank of China, China Financial Outlook.

11. Notwithstanding progress under recent reforms, the extent of commercialization in the financial sector remains limited and banking operations are concentrated in the four state commercial banks (Table III.2).8 Although the policy banks have commenced operations, the state commercial banks continue to lend to special projects and key industries identified by the State Planning Commission. Moreover, the transfer of some policy loans to the policy banks has been small in relation to the state commercial banks’ total loan portfolios, a sizable share of which comprises policy-directed loans. In addition, the market shares of the large banks remain high despite the reforms, and the share of credit extended to the nonstate sector has not increased substantially (Table III.3).9

Table III.2.

China: Market Share of Financial Institutions, 1988-95

(In percent of total financial institutions’ assets 1)

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Source: Data provided by the Chinese authorities.

Total financial assets excluding foreign banks and NBFIs. Data for these institutions are not available for years prior to 1995. For 1995, state commercial banks’ share in total financial assets, including foreign banks and NBFIs, was around two thirds.

Table III.3.

China: Distribution of Financial Institutions’ Assets and Liabilities, 1985-95

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Source: People’s Bank of China, Almanac of China’s Finance and Banking, and staff estimates.

Includes collectives, individuals, agriculture, joint-ventures, foreign-funded enterprises, and cooperatives, as well as one half of other loans.

12. While there has been a narrowing in its scope, the credit plan remains the main instrument of monetary policy and continues to covers a large share of credit extended by the banking system.10 In the past, the credit plan applied to virtually all financial institutions, and individual projects and loan amounts were specified. The trend in recent years, however, has been to reduce the number of institutions covered by the plan and, for those banks that remain under the credit plan, to be allowed somewhat greater autonomy in choosing projects, within an overall credit ceiling.

13. In addition to having their lending decisions influenced by the credit plan, banks are subject to controls on interest rates, for both deposits and loans. The structure of interest rates administered by the PBC is very complex, consisting of more than 50 rates. For loans, different interest rates apply to different maturities, and distinctions are made between loans for working capital and fixed investment. Moreover, rates are different for industrial and commercial loans, agricultural loans, and household loans. On the deposit side, individuals’ deposits are distinguished from institutional deposits, and the PBC sets interest rates for the entire maturity structure for both types of deposits. In recent years, some flexibility in interest rates for working capital loans has been allowed with the introduction of bands within which banks may set rates, both deposit and lending rates have been changed more frequently than in the past, and the administrative ceiling on interbank interest rates has been lifted.11 However, banks’ interest margins are thin, although interest rate adjustments undertaken in 1995 and 1996 raised margins slightly.1213

C. Regulatory Framework

14. A component of the authorities’ program to gradually commercialize the banking sector has been the enactment of a legal framework for banking which, until 1995, had consisted of a loose amalgamation of provisional regulations. Despite comprehensive new legislation—including the PBC law and the commercial banking law—based on concepts of risk and competition, progress in transforming bank operations has been slow.

15. The Law of the People’s Republic of China on the PBC—enacted in 1995—establishes the PBC as a legal entity, specifies its autonomy, and defines its functions. An agency under the authority of the State Council, the PBC is to be free from intervention by local governments or other administrative organs at all levels. The PBC is endowed with its own capital and must publish its balance sheet and profit and loss statement on an annual basis. Losses sustained by the PBC are to be offset by state allocations, and the PBC is not to finance the budget except under exceptional circumstances. In addition to managing the issue of currency and implementing the credit plan, the PBC is responsible for formulating and implementing monetary policy and supervising the financial system under the leadership of the State Council.

16. The commercial bank law—also enacted in 1995—sets out the legal framework for transforming state banks into commercial entities. The law subjects commercial banks to prudential regulations under the supervision of the PBC, which is also conferred with the responsibility for setting credit ceilings that the banks may not exceed. Specific financial and prudential ratios—the asset-liability ratio management system—are defined in the law. These targets—which include a loan-to-deposit ratio, exposure limits, and capital adequacy requirements—are to be phased in according to individual bank circumstances.14 The three policy banks are not subject to this law, and their operations are guided by individual charters.

17. An important element of the commercial bank law is the potential for commercial autonomy it accords to banks. Banks must operate independently and take responsibility for their own profits and losses, and each bank is held responsible for the activities of all its branches, in marked contrast with past practice which permitted branches to act independently. The law explicitly states that no interference with commercial bank operations will be allowed. However, the state commercial banks are urged to continue to provide loans to special projects approved by the State Council. While in principle banks have the right to refuse to finance a special project, in practice funding for such projects is rarely denied.

18. To focus banks’ operations on lending to enterprises and to limit exposure to risks, the commercial bank law establishes a separation of banking and nonbanking activities. Banks are barred from investing in NBFIs—whose operations are deemed more volatile and speculative than banking activities. New laws have been passed for negotiable bills, insurance, audit, and general bankruptcy, and laws under final consideration include those for guarantees, contracts, trust operations, and securities.

D. Supervision System

19. To support commercialization of the financial system, the authorities are in the process of strengthening the banking supervision system, the traditional role of which had been to verify compliance with the economic and credit plans. The focus of the system is shifting toward prudential supervision and strengthening financial institutions’ internal systems of risk management and control. While steps have been taken to upgrade the supervisory and regulatory environment, including through increasing resources dedicated to supervisory activities, effective prudential supervision is severely limited by weak accounting and loan classification systems in the banks, and a shortage of professionals skills, among both the bankers and the supervisors.

20. The national supervision plan is formulated at the PBC head office, and on-site inspections of financial institutions at the national level are carried out. Regular on-site inspections are scheduled once every three years for domestic and foreign banks and NBFIs. Collectively owned financial institutions (e.g., credit cooperatives) are inspected every two years. In some cases, banks’ own internal audit teams assist with the inspection while, in other cases, the supervisors rely completely on the results of the banks’ internal auditors. In contrast with past practice, banks are now supervised as whole legal entities. Organizational units of the PBC at the provincial, county, and township levels supervise banking units at the same level (e.g., provincial, county, or township). Their findings are communicated to the next higher level unit of the PBC for approval and consolidation with findings of other similar units.

21. Measures taken in recent years have sought to place more emphasis on prudential—rather than economic—regulation of the banking system, although compliance with credit plan ceilings is still required of the state commercial banks, the policy banks, and two of the nationwide banks. In addition to the introduction, mainly for prudential purposes, of the asset-liability ratio management system, the PBC has instructed all commercial banks to form internal audit departments to monitor risks and improve internal controls. Supervision of the RCCs—which had previously been the responsibility of the ABC—has become, since 1996, the direct responsibility of the PBC, and efforts are being directed toward increasing the quality and frequency of on-site examinations of all financial institutions. To this end, the PBC has established a training institute to upgrade the prudential supervision skills of its 12,000 bank supervisors.

22. The PBC also conducts off-site monitoring of financial institutions’ asset liability ratios on a regular basis. Traditionally, banks were required to submit the following types of reports to the PBC: annual credit and resource mobilization plans; statistical returns documenting the execution of these plans; and a balance sheet and profit and loss statement. In recent years, the focus of off-site supervision has shifted toward monitoring banks’ compliance with 16 prescribed asset-liability ratios, based on monthly and quarterly reporting by banks of some 850 items, including both prudential indicators as well as other statistical information.

23. The quality of banking supervision is severely limited, however, by weak accounting standards. In particular, inappropriate rules and practices with regard to income recognition, loan classification, and loan-loss provisioning distort the financial position conveyed by banks’ balance sheets. For example, banks are required to accrue interest for two years on nonperforming loans, compared with international practice of 90 days. Moreover, rules on loan classification impose limits on the proportion of loans that may be reported as nonperforming, potentially creating a wedge between the reported and actual quality of banks’ loan portfolios. In addition, banks must obtain permission from several different agencies in order to provision for loan losses, and face a provisioning limit of 1 percent of total loans. As a result, the information contained in banks’ balance sheets limits the usefulness of prudential analysis.

E. Bank Soundness

24. The substantial share of policy loans in bank lending—many of which have been to loss-making SOEs—has resulted in weakness in banks’ balance sheets. In addition, the poor accounting standards, together with rapid growth in assets and liabilities in recent years without accompanying growth in capital,15 may have caused banks to become under-capitalized.

25. However, assessment of the underlying soundness of China’s banks is complicated by several factors. First, only limited public information is available on critical financial variables, including the extent of nonperforming loans. Second, the definition of nonperforming loans is based on overdue payments, which is easy to manipulate and to varies across banks. Third, the financial data that are available are weakened by the poor accounting practices and likely distort the true financial position of the banks, particularly with respect to capital strength and profitability. Hence, indicators of bank soundness should be interpreted with caution, and quantitative estimates may be seen as indicative of broad trends rather than precise measures of banks’ financial strength. Because of these qualifications, and since the four state commercial banks account for around two thirds of bank lending, the analysis below of bank soundness is confined to these four banks.

26. Although official data on nonperforming loans are not published, it has been suggested that such loans could amount to 20 percent or more of the state commercial banks’ loan portfolios.16 Within the nonperforming category, loans are classified as over due, in distress, or bad. Overdue loans are those for which repayments are behind schedule by less than three years, while loans in distress are loans that have been in arrears for three years or more. Bad loans are those that are judged unlikely to be repaid. Under the asset-liability ratio management system, limits are imposed on each type of nonperforming loan—8 percent, 5 percent, and 2 percent of total loans, respectively, for overdue, distress, and bad loans.17

27. Loan-loss provisioning by the state commercial banks has tended to be inadequate, particularly in view of the sizable share of nonperforming loans on their balance sheets. In part, this reflects the limit on the amount of provisioning that may be undertaken, as well as the drawn-out procedures required to obtain permission to provision against nonperforming loans.18 According to published balance sheets of the large banks, the ICBC, the ABC, and the PCBC together had loan loss reserves of Y 13 billion at end-1994 and Y 21 billion at end-1995 (Table III.4). On a bank-by-bank basis, loan-loss reserves amounted to 0.5 percent of total loans in 1994 for the ICBC and the ABC, and 0.7 percent for the PCBC. In 1995, loan-loss reserves by the ICBC amounted to 0.8 percent of total loans, and 0.6 percent for the ABC and the PCBC.19

Table III.4.

China: Financial Position of the State Commercial Banks, 1989-95

(In billions of yuan)

article image
Source: People’s Bank of China, Almanac of China’s Finance and Banking; and staff estimates.

ICBC’s balance sheets refer to “borrowings” in 1994-95 and “borrowing from PBC” in previous years.

Refers to pre-income tax profits. Business and other taxes are included in expenses. Data for the ABC in certain years did not distinguish income taxes from other taxes; total taxes for those years were divided using the average proportion in recent years.

28. As regards banks’ profitability, two major factors limit the validity of published data. First, the recognition of accrued interest as income overstates, possibly by a sizable amount, true profits. Second, the inadequate provisioning against loan losses tends to understate expenditure. Despite the resulting tendency of these factors to overstate profitability, the return on assets for each of the four banks has declined significantly during the 1990s.20 Indeed, even with profits inflated by poor accounting and provisioning rules, the profitability of at least three of the banks—the ICBC, the ABC, and the PCBC—is weak in comparison with major banks in other countries, largely on account of low interest margins (Table III.5).21

Table III.5.

China: Selected Financial Statistics of the State Commercial Banks, 1989-95

(In percent)

article image
Source: People’s Bank of China, Almanac of China’s Finance and Banking; and staff estimates.

ICBC’s balance sheets refer to “borrowings” in 1994-95 and “borrowing from PBC” in previous years.

Refers to pro-income tax profits, divided by assets. Business and other taxes are included in expenses. Data for the ABC in certain years did not distinguish income taxes from other taxes; total taxes for those years were divided using the average proportion in recent years.

Capital and reserves divided by total assets.

29. The accounting and provisioning rules have also had an adverse impact on banks’ capital position. These rules give rise to an overstatement of profit, which is then taxed at the rate of 55 percent.22 This practice has, as a result, eroded banks’ underlying capital base, but is not reflected in banks’ balance sheets. Even the published balance sheet statistics, however, indicate a steady decline in capital relative to assets for each of the four state commercial banks.23 Capital-asset ratios (unadjusted for risk) of the ICBC, the ABC, and the PCBC at end–1995 were on average one half as high as at end–1989. The BOC’s capital-asset ratio also declined in the early 1990s, but recovered somewhat in 1994–95 and was significantly higher than the other banks at end–1995.

30. While data weaknesses and limitations limit the use of these indicators as measures of the state commercial banks’ financial strength, they nevertheless suggest that the banks’ financial position has eroded steadily in recent years. If these banks are to operate on a commercial basis, the burden of past policy loans will need to be removed and the pressure to continue to lend to loss-making state enterprises will have to be eased. Moreover, adequate supervision of banking operations will have to be complemented by improvements in accounting, classification, and provisioning, and classification standards. In this context, the Government is considering a recapitalization of the state commercial banks to strengthen their financial position.

F. Conclusions

31. Institutional development and financial market reforms have strengthened the legal underpinnings for increasing the commercialization of the banking sector. Notable measures in recent years have included the enactment of the central bank and commercial bank laws which provide a legal foundation for commercializing bank operations; gradual narrowing in the scope of the credit plan in order to increase banks’ autonomy over lending decisions; and creation of policy banks to facilitate the separation of policy- and commercially-based loans.

32. Nevertheless, much remains to be done to commercialize banking activity, including the removal of pressures—particularly from local governments—to support loss-making state enterprises. Indeed, the cessation of policy lending by the state commercial banks’ will improve their financial strength.

33. Continued progress in the transition to a market-based financial system will need to be supported by enhanced prudential supervision, with a view to improving, inter alia, the quality of bank loans. In this context, accounting and provisioning standards will have to be upgraded in order to facilitate prudential analysis and accurately assess banks’ financial position. The appropriate functioning of banks in a commercial and competitive environment will also require that banks are adequately capitalized. However, any recapitalization should be closely linked with progress in commercialization to ensure a sustained strengthening of banks’ balance sheets.


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This chapter was prepared by Mr. Husain (ext. 34941), who is available to answer questions related to the chapter before the Board discussion.


Sachs and Woo (1997; pages 17 and 25) quote statements by senior leaders indicating that banks continue to face pressures—particularly from local governments—to lend to loss-making state enterprises. Bashford and O’Neill (1997) quote comments by the PBC Governor stating that the central bank aims to stem the influence of local governments on bank lending to inefficient state enterprises.


See Mehran et al. (1996) for a detailed description of financial sector development in China.


The policy banks are the State Development Bank of China (SDBC), which is responsible for financing key construction and infrastructure projects and strategic industries; the Export-Import Bank of China (ED3C), which provides buyers and sellers credits in support of export and import activities; and the Agricultural Development Bank of China (ADBC), whose activities include the financing of agricultural development and the government’s procurement of agricultural products. The policy banks are financed by bond issues, although the ADBC also accepts deposits.


While there is no uniform definition of policy lending, policy loans tend to fulfill the following criteria: they are made at the request of—or strongly encouraged by—the government to promote its economic, industrial, and sectoral policies and to ensure funding for priority activities; and they may or may not meet banks’ commercial criteria for loans.


A joint-venture bank was also granted permission to engage in renminbi business.


The divestiture process was largely completed in 1996.


The four state commercial banks account for around two thirds of financial institutions’ total assets and 70 percent of total deposits.


Loans to individually- or collectively-owned enterprises, joint ventures, foreign-funded enterprises, and cooperatives—which together comprise the nonstate sector—amounted to 21 percent of total banking sector loans in 1995. However, this figure may understate lending to the nonstate sector, as some state enterprises on-lend bank credit to their nonstate subsidiaries. The nonstate sector, particularly foreign-funded enterprises, also rely on direct foreign borrowing to finance operations.


In 1996, for example, the credit plan covered around 60 percent of the net credit growth of the entire banking sector. At present, lending operations of the state commercial banks, the policy banks, and two of the nationwide banks are covered by the credit plan.


Since 1988 interest rate subsidies for deposits of three-year or longer maturities have been introduced during periods of high inflation to ensure that real long-term deposit interest rates remain at least zero. However, the cost of the subsidies has been borne by the budget and not the commercial banks.


Interest margins in January 1995 for one-year and five-year maturities were 0.7 percent and 0.9 percent, respectively, and -2.3 percent for maturities often years or more. The interest rate adjustments in 1996 improved margins by an average of ½ percentage point.


A detailed discussion of recent interest rate developments is contained in Chapter II of People’s Republic of China—Recent Economic Developments (SM/97/145, 6/12/97).


The asset-liability ratio system is described in detail in Box 4 of People’s Republic of China—Recent Economic Developments (SM/97/145, 6/12/97).


The combined balance sheet of the state commercial banks (Table 4 in Chapter II of the Recent Economic Developments paper) indicates very little growth in paid-in capital during 1993-96.


Faison (1996) quotes a statement by the PBC Governor indicating that 8 percent of loans outstanding are to enterprises that were behind in their repayment schedules by three years or more, while another 12 percent were late by less than three years. Some private estimates of the proportion of nonperforming loans in total loans are higher, including an estimate by Jardine Fleming cited in Roell (1997) of 29 percent. There has also been some ambiguity with regard to the definition of nonperforming loans in news reports, with the concepts of “bad loans” and “nonperforming loans” sometimes used interchangeably.


Introduced in 1994, these limits are to be phased in gradually.


International best practice is to provision 15-25 percent for loans classified as substandard, 50 percent for loans classified as doubtful, and 100 percent for loans classified as losses. In addition, some countries require banks to undertake a general provision equivalent to 1–2 percent of total loans. General provisions are normally not tax deductible, while specific provision are.


For the BOC, the magnitude of loan-loss reserves and the extent of loan-loss provisioning are difficult to assess from its published balance sheet.


The return on assets is the ratio of pre-income tax profits divided by total assets. Data for certain years in some of the banks’ balance sheets do not distinguish between business taxes and income tax. Since the former are deducted from the profit measure employed in this calculation, while the latter are not, the figure for pre-income tax profit had to be approximated in some cases.


The return on assets averaged 0.2-0.3 percent for these banks in 1994-95, compared with an average of 0.6 percent for the four largest banks in Germany (1992), 1 percent in the United States (1992), 2 percent in Hong Kong (1995), and well over; 2 percent in Brazil (1992).


The income tax rate applying to domestic banks was lowered to 33 percent, the same rate that applies to domestic enterprises, effective 1997. At the same time, however, the business turnover tax rate was raised from 5 percent to 8 percent.


Risk-weighted capital adequacy statistics, while compiled by the PBC in the context of the asset-liability ratio management system, are generally not published. An exception is the BOC, which reported a risk-weighted tier one capital adequacy ratio of almost 13 percent at end-1995. It should be noted, however, that although the asset-liability system requires a risk-weighted ratio of at least 8 percent, in line with the minimum standard recommended by the Basle Committee on Banking Supervision, the risk weights applied in China differ from those used in other countries. For example, the risk weight for loans to other commercial banks is zero in China, compared with 100 percent in other countries. Claims on public enterprises receive weights from 10 percent to 50 percent, whereas the weight accorded in other countries to all customer loans of standard quality is 100 percent.