Documentation: China Banks Are Under Glass-Steagall Regulation

April 1, 2019 (EIRNS)—In the early 1990s, some financial institutions in China treated the inter-bank lending market as an easy and low-cost place to raise funds. Some borrowed heavily to invest in real estate. They also speculated savings deposits into the stock market. By the summer of 1993, deposits in commercial banks were insufficient to cover development needs.

The result was that the State Council determined that the People’s Bank of China (PBOC) central bank was given independence in conducting the monetary policy of the nation. The PBOC issued in June 1993, “Some Opinions Regarding the Current Economic Situation.” It spelled out that the PBOC would “separate commercial banks from their affiliated trust and investment firms....” Further, a concise document consisting of six bullet points, the “Memorandum of the Chinese Communist Party Central Committee, 14 November 1993,” defined the PBOC’s new power, under the State Council, to “conduct monetary policy independently”; “supervise all other financial institutions”; and further: “The banking business and the securities business shall be separated.”

A number of Chinese specialists report that these measures were modeled on the U.S. Glass-Steagall law of the time, or otherwise state that the measures were equivalent to Glass-Steagall.

References: See “Transforming China’s Traditional Banking Systems under the New National Banking Laws” by Andrew Xuefeng Qian, in the Georgia Journal of International and Comparative Law, Vol. 25:478, pages 489-490; and also Banking Reforms and Monetary Policy in the People’s Republic of China by Yong Guo (2002).

See also, “The Intrinsic Logic of China’s Banking Industry Reform” by Yi Gang, in Transforming the Chinese Economy, Chapter 4, pages 141-143, edited by Fang Cai (2010). (From the China Vitae of the Carnegie Endowment for Peace: As of 2018, Yi Gang has been the Governor of the People’s Bank of China. He became secretary-general of the Monetary Policy Committee of the People’s Bank of China in 2002-2008, and Deputy Governor of the People’s Bank of China in 2008-2018. From 2009-2016 he was Director of the State Administration of Foreign Exchange (SAFE). In 2014 he was named Deputy Director, General Office of CPC Central Leading Group for Finance and Economics; and 2017, Alternate Member, 19th CPC Central Committee.)