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Abstract
The objective of this paper is to gauge the extent to which Chinese state-owned commercial banks are converging with international best banking and corporate governance practices, with a particular focus on the policy of international listing given its recent popularity. Drawing on the international listings of China's state-owned banks on the Hong Kong stock market, the paper finds that formal convergence is possible to achieve. More difficult to achieve is substantive convergence. In general, the findings suggest that the domestic institutional framework still matters, but what may matter more is that banks have the autonomy to integrate best-practices in a manner consistent with domestic conditions.
Acknowledgements
The authors would like to thank Pauline Loong, Leo F. Goodstadt, Stuart Chiron, Ashley Alder, David Li, Mathew Yiu, Roger Luk, Simon Ogus, and Steven Green for their assistance with various aspects of the research fieldwork and Laixiang Sun, Christopher Howe and Sanzhu Zhu for helpful suggestions.
Notes
Notes
1. For example, in 2005, Transparency International ranked Hong Kong 15th in the world in terms of integrity, while China was ranked 82nd. ‘Integrity and Corruption’ The Economist October 20 2005.
2. Interview HKSE, 22 July 2001, and HKSFC, 5 July 2004. The HKSFC noted that the process of regulation is, however, likely to become more prudential with regulations on transparency and disclosure being put in place to bring the Hong Kong market in line with international practice. The likely effect for Mainland companies is that they will have to think even more seriously about regulatory risk.
3. ‘Graft investigation clouds Construction Bank plans to list in SAR’ The Standard (HK), 16 March 2005.
4. ‘Banker gets six years in 38m Yuan loans scandal’ The Standard (HK), 2 February 2005.
5. ‘Shinsei Chief named CCB's independent director’ Financial Times (FT), 22 September 2004.
6. Given the numerous state asset injections and earnings restatements that took place over the last few years, the financial returns of state banks need to be interpreted cautiously.
7. Interview: Director, DSG Asia, Hong Kong, 23 August 2004.
8. ‘Beijing to step up fight on illicit steel plants’ FT, 24 September 2004.
9. While the PBOC was originally formed in 1948, it was not until 1983 that the State Council decided that it should function as a central bank. This status was not recognised in law until1995.
10. The PRC law on banking supervision, effective from 1 February 2004 clarifies the legal status of the CBRC giving it broad supervisory powers over commercial banks.
11. Stephen Harner, Independent Director, Hangzhou City Commercial Bank quoted from The Economist, 27 October 2005.
12. ‘Banks must be transformed’ FT, 5 May 2004.
13. ‘Some Considerations in the Study of Monetary Policy Transmission’ Zhou Xiaochuan Governor, PBOC, 12 May 2004.
14. China's Monetary and Interest Rate Policy in Year 2004, PBOC 12 May 2004.
15. ‘Some Considerations in the Study of Monetary Policy Transmission’ Zhou Xiaochuan Governor, People's Bank of China, 12 May 2004.
16. BOCHK Announcement Change of Chairman and Chief Executive, 28 May 2003.
17. See ‘Bad Habits’, The Economist, 12 June 2003.
18. ‘Scandal in Shanghai’, The Economist, 16 August 2003.
19. ‘Shanghai vows to crack down on property bribery’ South China Morning Post (SCMP), 13 June 2003.
20. Between 100 and 200 peoples were reported as having been involved in a protest outside a local government office over the issue of land transfers. An official from the Shanghai government claimed that over million people had been moved to make way for redevelopment since the 1990s. ‘Shanghai Police arrest property protesters’ SCMP, 18 June 2003.
21. A special investigation by the Peoples Bank of China in 2002 into the lending problems of state-owned banks resulted in the censoring of 114 people responsible for loan management, 15 of whom were handed over to the courts. ‘Bank officials punished for malpractice’, China Daily, 17 June 2002.
22. BOCHK Announcement Relating to the New Nongkai Loan, 7 June 2003.
23. ‘Control concerns spurs S&P to downgrade BOCHK’, SCMP, 12 June 2003.
24. ‘List of Downgrades Continues’, SCMP, 5 June 2003.
25. BOCHK Announcement, 11 June 2003.
26. BOCHK Announcement: Report of the Special Committee on Corporate Governance, Credit Approval Process, Risk Management & Internal Control Mechanisms of BOCHK Ltd, 5 September 2003.
27. Roy Ramos (Goldman Sachs) quoted in ‘Listing Sponsors go negative on BOC’ SCMP, 10 June 2003.
28. Interview: Deputy Chief Executive, Hang Seng Bank, 5 August 2004.
29. HKMA Deputy Chief Executive HKMA as reported in SCMP, 14 June 2003.
30. Reported in SCMP, 14 June 2003.
31. Government Information Service, Hong Kong, 13 June 2003.
32. See ‘HKMA widens the Net in BOC Probe’, The Standard (HK), 6 August 2004.
33. ‘Lender hit by new scandal’, The Standard (HK), 4 August 2004.
34. BOCHK Announcement, 10 June 2003.
35. BOCHK Press Release, 16 August 2004.
36. BOCHK Announcement, Change of Chairman and Chief Executive, 28 May 2003.
37. The BOCHK's CEO was paid HK$2.5 million in 2003 compared with the Bank of East Asia's Chief Executive (HK$17.5 million) and Hang Seng's Chief Executive (HK$7.7 million). CLSA (Citation2004).
38. Interview: Executive Director, Bank of China (Hong Kong), Hong Kong, 20 July 2004.
39. Interview: Senior Chinese Bank official, Hong Kong, July 2004.
40. Fitch Ratings Chinese Banks 2006.
41. ‘Vice premier emphasizes introduction of best banking practice’ Peoples Daily, 1 July 2004.
42. ‘Guidelines on Corporate Governance Reforms and Supervision of Bank of China and Construction Bank of China’ CBRC, 11 March 2004.
43. Interview: Secretary to the Board of Directors, Bank of China (Hong Kong), Hong Kong, 20 July 2004.