Private Banks (Taiwan's Practice and Mainland China's Exploration)

Author: Xiong Jizhou
Publisher:
Publish Date: 2003-11-01
Features: In December 2002, funded by the Himalayan Foundation, Fudan University held an academic symposium titled "Lessons from the Development of Private Banks in Taiwan and Their Implications for Mainland China." Now, the excellent papers presented by the experts and scholars at the symposium have been formally compiled and published. This is a welcome development in academic exchange across the Taiwan Strait, and I extend my congratulations. The concept of private banks originated in July 2000 with the establishment of the Great Wall Financial Research Institute. Scholars such as Xu Dianqing and Fan Gang (2001) argued that while China was actively developing the private economy and introducing competitive mechanisms, it overlooked the development of private financial institutions in the financial market, leaving state-owned banks in a monopoly position and resulting in severe competition deficiencies in the financial sector. China should develop a multi-tiered financial system, which requires both large, nationwide state-owned commercial banks and local, small-to-medium-sized private banks. For a time, calls to establish private banks grew strong, but to this day, academia has not reached a unified consensus on what constitutes a private bank. Broadly speaking, there are three representative viewpoints:
1. The "Private Capital Control" theory, which emphasizes ownership structure, defining a private bank as one controlled by private capital.
2. The "Private Enterprise Service" theory, which emphasizes the asset structure, defining a private bank as one that primarily serves private enterprises.
3. The "Corporate Governance Structure" theory, which emphasizes corporate governance, defining a private bank as one where senior management is appointed by shareholders or the board of directors and operates with market-oriented mechanisms.
In my view, regardless of how a private bank is established, it should be a modern commercial bank with clear property rights, standardized corporate governance, and engaged in commercial banking activities. Over the past two decades of reform, we have found that industries with more competition tend to be more efficient. In this sense, financial openness to the domestic market is an inevitable trend in reform. The experience of Taiwan proves that the establishment of private banks can promote competition in the banking sector, improve service efficiency and quality, but unfortunately, Taiwan also faced an issue of overbanking (overbanking) due to the establishment of too many new banks, which serves as a warning for mainland China. For mainland China, strengthening the credit risk management of small-to-medium-sized private banks is particularly important. Banks are a very special type of enterprise, and their operational risks can affect the stability of the entire financial system. For the government, it is essential not only to establish sound credit-related laws and regulations but also to strengthen supervision and management of private banks. Innovation always carries risks, but the key is to control and resolve these risks to the greatest extent possible through in-depth research, discussion, and legal and policy measures. I hope the publication of this book will further promote understanding and awareness of private banks and contribute, in a small way, to the reform and development of China's banking sector.
Introducing the system of private finance, breaking the monopoly of state-owned banks, and promoting financial development and deepening have become key components of China's financial system reform. Before 1990, Taiwan's banking system shared many similarities with mainland China, with public banks holding a monopoly position. Afterward, as Taiwan allowed the establishment of private banks and privatized public banks, banking system reforms and innovations advanced rapidly, with both successful experiences and lessons learned. This book is a collection of papers that explore topics such as the "institutional foundations of private bank development, strategic construction and path selection, risk prevention, corporate governance, and lessons from Taiwan's experience." It is suitable for students and faculty in universities and colleges majoring in finance and economics, as well as financial professionals.