Système financier chinois

Chinese Financial System

The difference between direct and indirect financing:
The difference between direct and indirect finance is that in the first case, it takes place between a lender and a borrower, with no intermediary (i.e. the bank). It takes place between an ultimate lender and an ultimate borrower.
On the other hand, indirect finance involvers a 3rd person, that in most cases, isthe bank. So if I borrow £100 from the bank, I am effectively borrowing £100 from the person who deposited that money in the bank (so he is technically the one loaning me the money). In this case, he is insured against the risk of default as the bank will cover the loan should I default on the payment. In this case, the lender is not insured so I think it’s more risky
As a result the cost(interest) of direct finance is higher because of higher risk of not settling back the loan: the lender has no insurance since there are no intermediaries. As a result the lender will ask for a better return rate, which is obvious.

Difference between direct investment and portfolio management:

Foreign direct investment (FDI) pertains to international investment in which the investor obtains alasting interest in an enterprise in another country. Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment.
FDI is calculated to include all kinds of capital contributions, such as the purchases of stocks, as well as the reinvestment of earnings by a wholly owned companyincorporated abroad (subsidiary), and the lending of funds to a foreign subsidiary or branch. The reinvestment of earnings and transfer of assets between a parent company and its subsidiary often constitutes a significant part of FDI calculations.

An investor’s earnings on FDI take the form of profits such as dividends, retained earnings, management fees and royalty payments.

Foreignportfolio investment (FPI), on the other hand is a category of investment instruments that is more easily traded, may be less permanent, and do not represent a controlling stake in an enterprise. These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise which does not necessarily represent a long-term interest.

The returns that an investor acquires on FPIusually take the form of interest payments or dividends.

The difference between FDI and FPI can sometimes be difficult to discern, given that they may overlap, especially in regard to investment in stock. Ordinarily, the threshold for FDI is ownership of « 10 percent or more of the ordinary shares or voting power » of a business entity (IMF Balance of Payments Manual, 1993).

The difference is thenif the investor desire to take part in the company decisions its development, or if he just wants to get return from stocks and don’t be involved.

Different layers of the Chinese banking system:

The Financial Chinese banking system is composed of five tiers, which are:
Central Bank:
The People’s Bank of China was the central bank and the foundation of the banking system. PBOC has fullautonomy in applying the monetary instruments, including setting interest rate for commercial banks and trading in government bonds.
It also maintains the banking sector’s payment, clearing and settlement systems, and manages official foreign exchange and gold reserves. Meanwhile, It oversees the State Administration of Foreign Exchange (SAFE) for setting foreign-exchange policies.

ChinaBanking Regulatory Commission (CBRC) was officially launched on April 28, 2003, to take over the supervisory role of the PBOC.
Commercial banks:

– As the first tier Commercials bank also named the big four: ICBC which is the largest bank in China by total assets, total employees and total customers. The Bank of China (BOC) specializes in foreign-exchange transactions and trade finance. The…