The Changing Regime for Regulating Loans of State Owned Banks in China: Towards a System of Prudential Banking

Abstract

ARTICLE THE CHANGING REGIME FOR REGULATING LOANS OF STATE OWNED BANKS IN CHINA: TOWARDS A SYSTEM OF PRUDENTIAL BANKING Richard Wu* I. INTRODUCTION In spite of the deepening problems in the global banking sector caused by the US sub-prime crisis, the four major state owned banks in the People's Republic of China ('the PRC' or 'China') all recorded increases in profits during the first quarter of 2008.1 For example, during this period, the Industrial and Commercial Bank of China ('ICBC') reported an improvement in net profit of 77% to an amount of V 33.1 billion (USD 4.7 billion). Also the Bank of China ('BOC') increased its net profit by 85% to Y 21.7 billion. Similarly, the China Construction Bank ('CCB') made a net profit of V 32.1 billion, 2 while the Agricul- tural Bank of China ('ABC') increased its profits by 39% to Y 54.3 billion (HK$62,21 billion). 3 As a result, the ICBC is devel- Research for this article was supported by a grant from HKU Small Project Funding (Project No. 2007076155). ** Associate Professor, Faculty of Law, University of Hong Kong, LL.B., PC.LL. (HKU), B.Sc.(Econ.), LL.M. (London), M.B.A. (Warwick), LL.B., LL.M. (Peking), LL.M. (IT and Telecom Law) (Strathclyde) and PhD (London). 1. In this article, state owned banks refer to the four major Chinese state owned banks, namely, Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of China and Construction Bank of China. While there are other state owned banks existing in China, they were not the focus of this article and are therefore not considered in great detail in this article. 2. See Andrea Li, Robust Banking Results Belie Global Slowdown, S. CHINA MORNING POST, Aug. 25, 2008, at (Business) 4; Jamil Anderlini, Profit Surge at Chi- nese Banks, FIN. TIMES (London), Apr. 30, 2008, at 15. 3. Tom Miller, Agricultural Bank Operating Profit Rises 39% to 56 Billion Yuan, S. CHINA MORNING POST, July 22, 2008, (Business) at 4.