The marketization of China's capital is 45% by end of the Ninth 5-Year Plan, and 60% by end of the Tenth 5-Year Plan, from mid-transition to late-transition. At present, the proportion between the funds raised through the capital market and the bank loans is about 2 to 8, which indicates that on the one hand, the ratio of direct financing is relatively low and has great potentiality; on the other hand, the bank shall take too much risks.
Among the main suppliers of the capital market, namely various kinds of banking institutions, there are as yet no publicly owned banks. This forms a sharp contrast with the non-banking sector where one-fourth of the employees are already either engaged in individual operations or are moving from job to job.
Among publicly owned banking institutions, over 75% of the employees are employed in state-owned professional banks that are changing towards a market (commercial) nature. These employees in status are equivalent to government office workers. They all have corresponding administrative ranks and cadre status. The majority of these employees are about 25% marketized and in the primary stage of transition.
The Communications Bank, Everbright Bank, CITIC Bank, and corporate financial companies as well as rural credit unions are organized according to market principles; their employees occupy about 25% of the total number of banking staff. Because the reform of the state-owned system is not thorough, and because of historical reasons, even these employees have not accomplished the transition to the market system.
Their degree of marketization is around 50% (i.e., middle or late transition period). Looking at the banking industry as a whole, the degree of marketization of banking staff and institutions should be around 35%. This can also be seen from people’s evaluation of banking services.
According to the Chinese Economic Boom Monitoring Center’s survey of residents of 4 northern cities, nearly 60% of the people believe banking service is just "so-so," 18% are unsatisfied, and 70% believe that banking services are inadequate.
In terms of the market share of capital, though professional or administrative banks have dropped from holding 80% of the funds to 70%, loans truly operated according to market principles are estimated to be only half.
Other non-professional banks’ loans are about 70% operated truly according to market principles. Excluding the illegal banking market, nearly 60% of the loans in China are operating according to market principles. Of course, over two-thirds of the total loans from professional banks are loaned to state-owned enterprises that are weak in marketization.
Loans by power and loans by connections are commonplace, and loans are still managed by a centralized authority. Repayment on many loans is hopeless; in some cases, only interest can be collected but the capital cannot be recovered. The state banking sector as a whole is showing deficits.
The interest rate, as basic price of banking products, is decided by the government. Naturally there is a difference between the official interest rate and actual practice. According to investigation, the actual enterprise-loan interest rate is often 50% to 100% higher than the official interest rate; this extra is expressed as gifts from enterprises to banks, commission extorted by banks, banks taking part in enterprise profit-sharing, and complicated approval procedures.
This is a distorted marketization, against the market in nature. This also indicates that China’s interest rate marketization level is very low, only half way, so there is still another half way to go before a full transition.
As for the People’s Bank of China getting rid of the provincial branches and establishing 9 regional branches, it can be considered internal structural reform, and has a limited affect on the marketization of banking.
Looking at the structure of banks, the structure of funds, and the structure of interest rates in China, one can say that the marketization degree of China’s capital market is around 40%, i.e., in the middle of transition. Based on this degree of marketization, by end of the Ninth 5-Year Plan it may reach 45%, and 60% by end of the Tenth 5-Year Plan, and enter the late transition period.