PROJECT REPORT ON

THE STUDY OF FINANCIAL

SERVICES OF CHINA

Table of content:

Sr. No

Topic

Page No.

Introduction To Financial System In China

2.1

Banking Industry In China

2.2

Marketing Of Banking Products In China

3-4

3.1

Insurance Industry In China

3.2

Marketing Of Insurance In China

4.1

Mutual Fund Industry In China

4.2

Marketing Of Mutual Fund In China

Conclusion

1.

INTRODUCTION TO FINANCIAL SYSTEM IN CHINA

China's financial system is highly regulated and has recently begun to expand rapidly as
monetary policy becomes integral to its overall economic policy. As a result, banks are
becoming more important to China's economy by providing increasingly more finance to
enterprises for investment, seeking deposits from the public to mop up excess liquidity, and
lending money to the government.
The financial system plays a critical role in fueling the expansion of China, which has
grown to be the second largest economy in the world and is likely to eventually surpass the US.
Yet there much less understands of Chinas financial system than there is of Americas or
Europes. Many analysts believe that the financial system represents a major vulnerability for
Chinas economic development, whereas others, equally respected, think that the financial
system is adapting effectively to Chinas more developed status and will continue to provide the
necessary fuel for the rest of the economy.

Chinas financial system has managed for several decades to perform well enough to
support the very rapid economic growth of that nation. One can argue about whether
alternative approaches would have worked better, but, at a minimum, it represents a real
accomplishment to have avoided acting as an anchor preventing the impressive growth that
China has achieved.

2.1

INTRODUCTION OF BANKING INDUSTRY IN CHINA

China's banking system has undergone significant changes in the last two decades.
China's banking industry has remained in the government's hands even though banks have
gained more autonomy. The central bank of China is the People's Bank of China. The "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.
Despite concerns over shadow banking in China, the banking sector has remained
broadly stable in 2013. Although income growth is slowing, it is converging into more normal
trend growth rates. In 2012-13, Non-Performing Loans (NPLs) and overdue loans balances
have risen slightly, driven by the deceleration of the economy. The increase in NPLs was more
noticeable in selected industries and SMEs.
China has also allowed a dozen joint stock commercial banking institutions and more
than a hundred city commercial banks to operate in the country. There are also banks in China
dedicated to rural areas of the country. Foreign banks were also allowed to establish branches
in China, and to make strategic minority investments in many of the state owned commercial
banks.

2.2

THE BANKING MARKETING METHODS IN CHINA

Marketing culture building: Marketing culture refers to the values, conduct code and
behaviors after long time deliberately marketing practice. Market culture dissolves in all
marketing steps and serves for the business target. To build up the marketing culture,
the first way is to innovate the marketing ideas, such as achievement awareness,
3

customer-centered ideals, market awareness, social awareness and risk awareness.

Secondly, reconstruct the marketing organizational system. The organizational
structure which consists of the front, the middle and the rear part bears different but
related duties. The front part is to collect the package information. The middle and the
rear part are to reprocess the information and design the products to customers taste
and the marketing strategy to assist the front part.

Customer-centered strategy is crucial to marketing innovation: Customers are not

content with product-centered strategy, which employed by the traditional banking
institutions. Switching to customer- centered strategy means retail business transforms.
Customer-centered strategy requires banks to design products to a particular customer
to his or her complete satisfaction. All works, including product design, marketing
circle around the customers. Customer will be more content and faithful to a bank.
CRM will be a weapon for Chinas commercial bank to develop its core competitiveness.
Chinas current commercial banks are all taking customer-centered strategy and try
hard to improve the products, operational environment and service quality. They also
work hard to provide variable products and enhance the uniqueness of the products.

Enhance channel management: The proverb Channel is the God tells us the how
important channel is to retail chain enterprises. Channel is critical to commercial banks,
especially to retail business. Channels fall into 3 parts: the first and also the core are the
physical branches. The second is the self-service channel, Such as self-service bank,
ATM and automatic terminal, etc. The third is electronic channels including E-bank,
Phone Bank and Mobile Banking. Chinas commercial banks put more emphasis on
branch and less emphasis on self-service and electronic distributors.

3.1

INSURANCE INDUSTRY IN CHINA

On 20 October 1949, the Peoples Insurance Company of China (PICC), the first Stateowned insurance company in Chinas history, was established

Before 1949, most of Chinas insurance industry was controlled by foreign companies
operating from Shanghai

The current largest insurer in United States, American Insurance Group (AIG) was
founded in Shanghai in 1919. The foreign companies left China entirely after 1949

However, the diminishing necessity for commercial insurance in a centralized planning

economy finally led to the closure of the domestic insurance industry in 1959. Only a
small amount of foreign currency and export related insurance was left

At the end of 1978 the economic system reform and economic construction became the
main theme of Chinas development, which led to reestablishment of PICC, which had
monopoly position in Chinas emerging insurance market

In 1988, the PICC group was disbanded and, the 3 PICC companies were renamed:
China Life Insurance, China Property Insurance and China Reinsurance

From 1998 onwards there have been a rapid growth in Chinas Insurance Industry

Factors such as rising personal income, accelerating industrialization and urbanization,

social security system reform, insurance market opening, including fast growing
economy led to growth in Insurance industry in China

3.2

MARKETING OF INSURANCE IN CHINA

Over the past decade, the Chinese Insurance Market has increased by about 30 percent
each year, making China the worlds fastest-growing major life insurance market

In order to develop its insurance structure, China is taking aggressive measures to

develop its intermediary insurance market by having approved three Chinese insurance
brokers, by setting up 33 Chinese professional agents and by the approving of 3 loss
adjusters

China Insurance Regulatory Commission (CIRC) has approved an increase of four new
insurance companies, Minsheng, Oriental, Shengming and Hengan to provide partners
for foreign life insurance companies and to increase the number of Chinese companies
to 17

CIRC granted insurance companies the rights to operate in more Chinese locations

Two sub companies to China Reinsurance company have been opened to increase
Chinas ability to offer reinsurance products

Many Chinese insurance companies have made alliances with banks and other
financial institutions to strengthen their marketing and customer service capabilities

Many insurance companies and banks have teamed up to offer credit card service to
their customers (e.g. Pingan Insurance company and Guangdong Development Bank)

Some of the other initiatives include new unit-link policies more customer service
centers and a 24 hour national service hotline to serve insurance customers

4.1

MUTUAL FUND INDUSTRY IN CHINA

Compared to the growing income investment, retirement and insurance needs of

increasingly affluent Chinese nationals, Chinas mutual fund industry has been largely
stagnant over the past three years due to stock market volatility and increasing competition.
However, China is still viewed as a key area for the future growth of the asset management
industry. In particular, media sources have speculated that Chinas mutual fund industry will
continue to witness rapid growth over the long term with the value of Assets Under
Management (AUM) of the securities investment Fund Management Companies (FMCs)
potentially set to triple to RMB 6 trillion within five years. It is also worth noting that
alternative investment schemes which provide either higher returns (with equally high levels
of risk) or extremely conservative allocations have taken market share at the expense of the
FMC offerings in recent years.
With this trend set to continue, it is critical for foreign investors to understand properly
not A the public fund industry but also the alternative investment opportunities in order to
formulate a robust strategy for investment in Chinas asset management sector.

4.2

MARKETING OF MUTUAL FUND IN CHINA

According to industry reports, Chinas four largest banks account currently for more
than 60% of mutual fund sales (in terms of net asset value). And even in the short-term,
Chinas domestic banks are expected to continue to dominate the market, thanks to their
extensive branch networks, an enormous structural advantage in China.
In reality, this is low-hanging fruit for the banks, says Stephanie Woo, an analyst at Gave
Kal Research. Their well-established distribution networks and close relationships with
customers make cross-selling easy. At the same time, consumers are not yet very savvy about
different types of financial products, so they tend to rely on the banks a great deal.
Meanwhile, responding to the increasing demand, Woo says Chinas large banks have
become more and more aggressive in their 'channel maintenance fee', the commission charged
to funds. They have begun to charge new fund houses up to 60% of a fund's management fee
as commission (for existing funds, the agreed rate in the past was 30%). Given on average a
management fee of 1.5% to 2% charged by funds, minus the channel maintenance fee by
banks, this gives the funds a net charge of only 0.6% to 0.8%, not yet including other costs they
have to incur.

CONCLUSION
The Chinese financial system is of great importance both for its role in enhancing or

holding back the development of Chinas economy and because it will also affect the rest of the
world, depending on how finance in China evolves over the next decade. Although the system
is vulnerable to a number of risks and its opacity means that still more dangers may lie under
the surface, it has served China well overall during the nations rapid development. As the
country slows its breakneck growth rate, and works towards the necessary evolution to greater
economic sophistication and international integration, the financial system is likely to continue
to support the larger economy. However, it will have to evolve very considerably to do this
effectively, and all concerned should watch carefully and help China avoid the many pitfalls. It
is encouraging that the new political leadership shows signs of understanding the need for this
evolution, and its challenges. It is, though, much too early to tell whether this apparent
understanding will be translated into workable reforms.
China industry has changed a lot in terms of operating structure, suppliers of insurance,
competitive market structure, geographic distribution, product portfolio, and distribution
channel and investment strategy. Despite the rapid growth in recent years, there are still many
areas for Chinese insurance markets to further develop. The existing markets are dominated by
few large majority state-owned insurance companies, leading to limited product innovation
and poor customer services. While CIRC has attempted to reduce many forms of malpractices
committed by the insurance companies, more competition from the entry of financially strong
private companies is needed to drive down the abnormally high profit margin in Chinese
insurance markets. There are also several important insurance markets that are non-existing or
tiny in China. For example, private annuity insurance market in China is very small.

GROUP MEMBERS:
Sr. No

Names

Roll No.

Michelle Gonsalves

307

Suruchi Jha

308

Khan Afzal

309

Smruti Modak

310

Anjali Pandey

311

Jay Patil

313

Vrushali Patil

314

10