China overtakes eurozone as world’s biggest bank system

A new analysis by the Financial Times shows that the banking system of China has overtaken the eurozone to become the world’s biggest by assets.

The analysis indicates China’s increasing global influence and its reliance on growth driven by debt.

Key highlights of the analysis

• China’s GDP surpassed that of the European Union’s in 2011 at market exchange rates. However, its banking system did not take over the top spot until the end of 2016.

• That lag was stimulated by an extraordinary increase in bank lending since 2008 when the Chinese government unleashed aggressive monetary and fiscal stimulus to soften the impact of the global crisis.

• Data show that Chinese bank assets hit USD 33 trillion at the end of 2016, versus USD 31 trillion for the eurozone.

• Also, the value of China’s banking system is more than 3.1 times the size of the country’s annual economic output, while it is 2.8 times for the eurozone and its banks.

• It was also noted that, unlike in developed markets, Chinese local governments have relied heavily on bank loans to finance infrastructure.

Banking in China

• China's banking system has undergone significant changes in the last 20 years.

• China's banking industry has remained in the government's hands even though banks have gained more autonomy.

• In 1995, the Government of China introduced the Commercial Bank Law to commercialize the operations of the four state-owned banks. These "big four" state-owned commercial banks are: the Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China, and the Agricultural Bank of China.

• The central bank of China is the People's Bank of China, which formulates and implements monetary policy.