Bank regulatory authority in China

In China the regulation of credit and capital is conducted by the banking system. Originally this system was highly centralized under the direct control the Ministry of Finance. More recently, as the Ministry of Finance has become busier with additional responsibilities such as the management of an increasingly complex tax system, and the banking system has gained its independence.

For the banks, this reorganization not only represents an increase in authority and status, it also makes possible an increased effectiveness in carrying out existing regulatory responsibilities. The need for increased effectiveness becomes evident on review of the role that the banks have played in Chinese society prior to the 1985 reforms. Without the means to enforce their authority, the banks could not be as influential in regulating the economy as had been intended.

Because they have been provided with enforcement regulations, the banks can now influence not only the provision of credit and currency but also the management of group and individual businesses and organizations throughout China. As the communist party stepping back from law and policy enforcement, the banks are partially filling the vacuum.