Chinese banking is at a crossroads. The rise of Chinese banks over the past decade has been nothing short of phenomenal, but there are still challenges ahead as the government urges them to lend more to keep the economy moving.
There is more than a touch of déjà vu about this. In the 1980s and 1990s, Chinese banks put on huge volumes of bad debts as a result of state-directed lending. Then in 1990 came the big clean up as the non performing loans were moved out into workout companies and the banks recapitalised.
Since then, every move in Chinese banking has been onward and upward - stock market listings, strategic stakes taken by international banks, improved corporate governance and risk management and stellar growth.
The Chinese banking revolution is made clear by looking at The Banker's Top 1000 rankings. Ten years ago there were only seven Chinese banks in the Top 1000, with a combined Tier 1 capital of $51.5bn. Today there are three Chinese banks which have a Tier 1 capital higher than that by themselves - Industrial and Commercial Bank of China, Bank of China and China Construction Bank. Today there are 52 Chinese banks in the ranking with four banks in the Top 25 - the three already mentioned plus Agricultural Bank.
High speed
What distinguishes the rise of Chinese banks compared with those from the UK and the US is the speed of development. UK and US banks took decades to develop. Chinese banks are doing it much faster.
This year they grew their total Tier 1 capital by nearly 30% at a time when the average growth in Tier 1 was only 10% - in other words, Chinese banks are growing three times as fast as the world average. China's banks are also among the most profitable in the world.
But at this juncture in the development of Chinese banking it is right to sound a note of caution. Banking systems everywhere are expected to respond to government direction, but in China it tends to be a command more than a request. The danger is that the good work of the past 10 years may be undone by a quick fix to keep the economy motoring.
