CONFIDENTIAL # 3
Financial Developments in China and their Implications for the Hong Kong Economy
The pre-1979 situation
China's post-1949 banking system was developed
using the Soviet model, with few significant changes prior
to 1979. Before 1979, the fiscal and monetary functions, which would be undertaken elsewhere independently by the central bank, the commercial banks and the State Treasury in the capitalist economies, were all placed under the
domain of one "bank" in China, namely the People's Bank of
China (PBOC). Enterprises and institutions were obliged to deposit all their cash above a stipulated amount with
the PBOC, which in turn made loans, at low interest rates,
in accordance with the overall state credit plan. Foreign
exchange and international banking functions were, and
still mainly are, the domain of the Bank of China (BOC),
which dealt with the foreign currency reserves of the
country under the supervision of the PBOC. The other
"bank", namely the People's Construction Bank of China
(PCBOC), was, before 1979, not a bank in the true sense of
the word. Operating under the administration of the
Ministry of Finance and Capital Construction Commission, it acted merely as a conduit for state-appropriated funds earmarked for capital construction projects.
2.
Prior to 1979, the banking system in China was
thus no more than an extension of the Government's fiscal
and capital investment operations. The primary function of China's banking system as a whole was to act as the government's agent in disbursing state funds and
overseeing their use. There was little difference in
practice between bank lending and government spending or between bank deposits and government revenue.
Control of
CONFIDENTIAL #B