Macroeconomics Case Study

Postal Savings Bank: Can It Boost Up the Rural Economy of China

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Abstract:
In order to penetrate the huge untapped rural Chinese households, the China Banking Regulatory Commission (CBRC) approved the setting up of the China Postal Savings Bank (CPSB). CPSB evolved from China Post's postal services, which provided a national postal service and operated the postal savings system by receiving deposits from the public. CPSB was expected to supplement the rural credit co-operative sector and to become a significant vehicle in the provision of retail credit in the rural sector. However, this was not the People's Republic of China (PRC) government's first attempt in boosting the rural banking system. Its earlier attempts in the form of the Agricultural Bank of China (ABC), the Agricultural Development Bank of China (ADBC) and rural credit co-operatives (RCC) had failed to fulfill the PRC government's objective of boosting the rural economy. In addition to that, both these banks suffered from huge losses and mounting numbers of non-performing loans (NPLs). The case discusses the critical success factors of rural banking in a controlled economy like China. It also emphasises the importance of asset quality in the growth and sustainability of a financial institution.

Pedagogical Objectives:

• To study the transformation in the Chinese banking sector that had taken place through various phases of reforms.
• To analyse the reasons for the failure of the ABC, the ADBC and RCCs in the rural market of China.
• To evaluate whether the entry strategies that were adopted by the CPSB to operate in the Chinese rural market will prove to be beneficial in future.

Keywords :  China, Banks, WTO (World Trade Organisation), Non-performing loan (NPL), Reform, Agricultural Bank of China (ABC), Agricultural Development Bank of China (ADBC), Rural credit co-operatives (RCC), New socialist countryside, China Postal Savings and Remittance Bureau (CPSRB), China Banking Regulatory Commission (CBRC), Euronet Worldwide Inc, Migrant workers, Poverty reduction, Five-tier loan classification