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Published on : Jan 06, 2014

Small enterprises in China have been cash-strapped and in need of help from the government. Chinese authorities have done just that by approving a pilot scheme that will pave the path for setting up anywhere between three and five private banks in the country. This move by the China Banking Regulatory Commission (CBRC) will ensure that the cash-strapped smaller firms are able to benefit from a much-needed cash boost.

However, the CBRC would continue to maintain regulatory standards while approving private sector banks. 

The first batch of banks-being set up as a pilot project-will see the banks being actually established only when they fare well and the market environment is conducive towards the same. Authorities did not elaborate further on this aspect.

The Chinese banking sector is currently dominated by large state-owned lenders. This has made it critical for Chinese leaders to open up the banking sector in a way that would benefit smaller players that the big banks don’t consider important enough.

Among the 10 largest banks that operate in China today, the China Minsheng Banking Corp. stands as the only private bank. However, it is interesting to note that SMEs constitute nearly 60% of China’s GDP. They are also credited for 75% of the new jobs being created in the country. However, these are the very industries that have been facing odds in view of the weak global demand and tight credit situation.

Industry sources say that players such as Tencent Holdings and the Suning Commerce Group have shown interest in establishing private banks in China.