Academic journal article Quarterly Journal of Chinese Studies

Confucian Implications on China's Financial Services Market

Academic journal article Quarterly Journal of Chinese Studies

Confucian Implications on China's Financial Services Market

Article excerpt

INTRODUCTION

This study primarily seeks to identify the implications of the Confucian worldview for contemporary young Chinese people's attitudes and behaviors towards financial planning in China's modem economy. This study posits that further scrutiny of Confucianism and an understanding of upwardly mobile Chinese young adults' financial goals are necessary components. Market potential will also be measured with consideration of the geopolitical climate of contemporary China, accounting for the One Child Policy.

China - An Overview

The banking sector dominates China's financial system (Barth, Tatom, & Yago, 2009). Over 1.7 million Chinese in China's banking industry and personal savings of US$ 1.3 trillion provide bankers, investors, and analysts with reasons to explore opportunities in the country's financial sector (Yang, & Kuhn, 2012). Since the late 1970s, China's financial service industry has transformed in less than 30 years after the government initiated economic reforms. This transformation reflects the shift from a centrally-organized to a market-oriented industry (China Knowledge Press, 2005). Technological advancements have been influential in this transformation. According to China Knowledge Press (2005), "Physical and manual clearing in the securities depository and clearing system have now been replaced with a dematerialized and centralized electronic system." (p. 5). After China's accession to the World Trade Organization (WTO) in 2001, the country's financial sector experienced increased liberalization, which brought some benefits such as the rise in foreign direct investments and reserves.

Moreover, in recent years, China's financial services market has undergone unprecedented changes as many banks and insurance firms have launched their IPOs in the local or global market. This is a part of China's efforts to fulfill its commitment to the WTO through opening up to foreign competition. Even in the midst of financial scandals such as the debacle at China Aviation Oil (CAO), the country's financial services industry has continued to witness mergers and acquisitions. CAO's main business involved procuring jet fuel for airports in China. The company initially engaged in futures and swap-trading to enhance jet fuel procurement. Later, it began speculative trading without incorporating it properly in the company's risk management and oversight policies. This led to failures in valuing contracts and inaccurate financial reporting. According to Deloitte (2006), "In the context of fair value accounting, the errors in the valuation of the open position led to erroneous financial statements. There were several roll-overs of loss generating positions, whereby options on bigger volumes were sold to generate sufficient cash to settle the losses on an existing position." (www.deloitte.com). Examples of recent merger and acquisition proposals include Deutsche Bank's move to buy a 10% stake in the Bank of China, as well as the proposed partnership between China's Dragon Fund Management Company and UBS, a Swiss-based bank (Yang, & Kuhn, 2012). Chinese banks have also made considerable progress in reducing the quantity of non-performing loans, as well as enhancing their efficiency (Barth et. al, 2009).

The Chinese government has also made an effort to improve its capital market. China's stock market grew to rank third behind Tokyo and Hong Kong. According to Barth et. al. (2009), "In 2007, China's stock market was ranked the world's largest emerging capital market and third-largest capital market after Tokyo and Hong Kong." (p.28). The evolution of the banking system has led to service diversification, banking autonomy, and monetary policy independence. Today, customers can access personal, private, corporate, and institutional banking services. The key players in the Chinese banking industry are the "Big Four" (China Construction Bank, People's Bank of China, Industrial and Commercial Bank of China, and Agricultural Bank of China, Policy banks, Joint-Stock banks, and Foreign banks) (Yang, & Kuhn, 2012). …

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