Privately state-owned
The Chinese banking industry has a unique hierarchical structure. At the top are the former policymaking banks which include the Bank of China, the Industrial and Commercial Bank (ICBC), and the China Construction Bank. These banks are the cornerstone of the economy as they are the main source of credit in the country and the government has a tight grip on them. Even though most have undergone some sort of IPO, the state still holds the controlling share. In the lower tiers of the industry, joint-stock banks, city-level commercial banks, and foreign banks carved out their niche.As one of the original “Big Four” banks in the country, the Bank of China has also undergone some sort of privatization process while remaining a state-owned bank. Originally, China Central Huijin and the National Council for Social Security Fund were the sole shareholders representing the interests of the central government. However, in 2006, the decision was made to offer a 26 percent share of the bank on the capital market.
Nationwide debt commotion
China faces a debt crisis on multiple fronts combined with an economic slowdown which could pose a significant risk for the banking industry. In the latest economic data from mid-2023, consumer prices dropped and pushed the second-largest economy in the world into deflation. In addition, the two-decade-long real estate boom appeared to run out of steam and the debt burden put local governments under pressure after two years of anti-pandemic measures. Under these circumstances, it is only a matter of time before bad debt appears on the bank’s balance sheets.Bank of China was one of the key sources of credit in the Chinese economy. Therefore, changes in loan quality could quickly balloon into a systemic banking risk. However, according to the latest financial statement, the bank’s balance sheet included 232 billion yuan in non-performing loans and 67 billion in loans that have been classified as a loss. Moreover, because its size and state ownership, the central government will pull the ripcord if the institution faces financial woes. Simply speaking, the Bank of China is too big to fail.
