Turbulence in the financial markets continues to constitute major risks for many of the world’s banking systems. In China however, the growing U.S. subprime crisis and the subsequent financial market turmoil, which has put the world economy in a stage of readjustment, seems to have had only limited impact on mainland’s banking industry.
At the International Conference of Banking Supervisors held last week in Brussels, China’s Banking Regulatory Commission Chairman, Mr. Liu Mingkang, notes news agency Xinhua, said that once hit by the latest round of shockwaves created by the subprime crisis, China’s Banking Regulatory Commission moved rapidly and adopted measures that required banks to disclose any susceptibility to risks as a result of their investments in subprime products.
Mr. Mingkang estimated that the Chinese banking industry would at most lose some profit for the year, and there would be no effect on the capital fund as a result of the ongoing crises.
According to China’s Banking Supervision Department – Chinese banks had only invested 3.7% of their total wealth in overseas assets that were prone to international tumult.
Mr. Mingkang, added the reasons the Chinese banks are able to escape with little damage from this financial storm are, first, the banks are benefiting from proper supervision, especially because the regulators have constantly kept an eye on the macroeconomic environment to adopt appropriate preventive measures. Second, China has always insisted on the separation of the banking system and the capital market. These effective measures have prevented the spread of risks between the money market and the capital market.
China’s financial system and its banks seem relatively shielded to the problems developed in U.S. since only a few Chinese lenders were subject to losses from investing in foreign assets involved in the Wall Street crisis. Based on the concept of capitalism being a delicate balance between production and finance – the Chinese regulators have implemented in their developing economy a prudent strategy in finance which involves the understanding that long-term sustainable economic growth requires the development of a sound and efficient financial system. But most importantly, that its effectiveness is predicated on the premise of a well-developed and responsible credit culture.