CC BY
8
Yu.V. Chutcheva, Doctor of Economics, professor, deputy head of «Economy and Cooperation chair», Federal State Budgetary Establishment of Higher Education «Russian State Agriculture University - Moscow Agriculture Academy named after K.A. Timiryzev»
Т.А. Goroshnikova, Philosophiae Doctor (PhD) in Technical sciences, associated professor, Federal State Budgetary Establishment of Higher Education «Financial University under the Government of the Russian Federation»
N.D. Asadova, Student of International Finance Faculty, Federal State Budgetary Establishment of Higher Education «Financial University under the Government of the Russian Federation»
SYSTEM OF FORMAL AND INFORMAL FINANCING OF CHINA
In this article are discussed the theoretical aspects of forming of financing in China; revealed problems of economy of China; and analyzed the economic relations of Russia and China. China's financial system is characterized by state-dominated banking sector. State-owned banks are inefficient in extending credit to the private sector, and all types of banks prefer lending to state-owned enterprises and large private firms. Finance is an important driver of economic growth. China is one of the largest and fastest growing economies in the world. Both informal and formal finance have their strengths. Informal finance plays a significant role in sustaining China s high economic growth. Moreover, informalfinance may support the growth ofthe private sector in countries with less developed legal andfinancial systems. Formal financing is borrowing from financial institutions such as banks and credit unions, and other non-bank financial institutions. There are several advantages of the Chinese-Russian economic and trade cooperation: between the two countries has created favorable political relations and perfect cooperation mechanism; there is a complementarity in the industrial structure; there is established an effective legislative framework of the two countries.
Keywords: formal financing, Chinese-Russian relations, banks, currency, debt, interest rate.
China is one of the largest powers in the world. On its territory lives more than 21 % of the world population. The economy of China is characterized by consistently high growth rates.
Formal finance is claimed to be the most important financing source for firm growth. Banks are efficient financial intermediations in the standard literature, providing proper screening and monitoring for borrowers while keeping the interest rate at a low level. As a result, banks can alleviate the credit constraints of firms and help grow faster.
Informal financing is claimed to be an essential source for the Chinese firms due to substantial obstacles in obtaining bank financing. Informal financiers often have better information than banks due to relationship with the borrowers, while they may also have better enforcement tools than banks, e.g. through reputation and coercion. Thus, informal financing may enhance firm growth through providing better screening and monitoring [4].
Actuality. The end of XX century the Chinese economy functioned mainly through the market, not com-mand-and-distribution mechanisms. China's banking system was engaged in the service of monetary flows, and not just based-distributed material resources. However, the sphere of the market economy in China greatly limited by government intervention (for example, loss-making industrial enterprises often do not go bankrupt, and receive financial support from the state), which entails a limitation of the market model of functioning of all financial institutions in the country [2].
Despite the assertion of some analysts that the fi-
nancial-banking system of China could be a kind of role model, it has its weaknesses.
One of which is a large volume of non-returnable loans. According to some estimates, the volume of non-performing loans reaches from 200 to 400 billion dollars, which is 20 to 45 percent of the balance of outstanding loans and about the same share of China's GDP. Among the main reasons that contribute to the growth of bad loans, the main place is the preservation of elements of administrative planning, imposed a system of market relations.
The aim of this work is to study the system of formal and informal financing of China.
Since 2001, when China joined the WTO, opened access to the outside world for foreign exchange transactions in Chinese banks. Currently, areas where foreign banks are allowed for transactions in Chinese yuan, expanded to 25 cities, and customers who are serviced by banks in transactions in Renminbi, were not only the enterprises on the foreign capital, foreign citizens and businessmen from Hong Kong, Macao and Taiwan, but also enterprises established in the Chinese capital. In 2015 China made new steps in the reform of the financial system - gave permission to foreign capital for joint participation in some state-owned commercial banks, authorized to establish a mechanism for the settlement of market interest rates (Mobius M. A management for the investor on emerging markets. -M, 2015).
By the end of 2015, 173 foreign banks from 40-odd countries and regions of the world created in China 249 226 offices and commercial units.
Among commercial banks of China, Bank of China is the most large-scale network; it opens the branches abroad and is engaged in international credits.
The stock market has contributed to the restructuring of public enterprises in the country; he gave them the real conditions for the transformation of management mechanism and the transition to a market economy system. As for the common people, with the advent of the stock market saving money in banks has ceased, as before, the only way to accumulate personal funds, they now have a new opportunity for multiplying the personal wealth.
Technical support of stock exchanges of the country continues to improve. There is formed the national electronic exchange system transactions and calculations to hubs in Shanghai and Shenzhen, all the operations for issuance and sale of the securities is performed exclusively by computers. The technical equipment of the Chinese stock market is at a global level [1].
Underdeveloped by modern standards, the financial-banking system of China is not allowed during the Asian financial crisis of catastrophic outflow of capital and the collapse of Chinese banking system, with severe social consequences associated with the inevitable wave of protests from private investors. China's financial system has also been able to prevent the devaluation of the yuan and allows you to still make use of it.
Nowadays, there is a stability of the Chinese currency against the devaluation of national currencies in the countries - neighbours, the toughness of China in maintaining a stable exchange rate of the Renminbi and its efforts to maintain the Hong Kong dollar contributed to raising political actions of countries in the region [5].
The strengthening of the position of and the reform of the people's Bank of China (PBOC) - the Chinese Central Bank. Over time, it is expected to transform the NSC into a kind of U.S. Federal reserve system. In turn, the NSC hopes to more carefully monitor the operations of commercial banks through its newly consolidated regional offices, bringing independence from local authorities. The main objectives of the NSC are the deregulation of the setting of interest rates and the effective implementation of policies concerning their formation.
In China, there are four main state-owned banks, which assume the entire responsibility for financing the economy. In order to improve the efficiency and reliability of these banks assume the removal of these loads on lending to costly government projects and unprofitable state enterprises. For further lending to the economy in China was established three so-called «political» of the Bank, whose main task was the financing of the real economy mainly at the expense of budgetary funds. There was also established a special financial «Agency for management of assets» that carry unpaid loans to state-owned enterprises «big four» state banks. Thus, state banks freed from the heavy burden. And the Agency will have to deal with the restructuring and sale of «bad» loans [6].
Foreign investment in China are one of the most important factors of economic growth, as clearly evidenced
by the pace of economic development of China, which today seems to be a world leader in attracting foreign capital.
Foreign investment in 1978, when China introduced the policy of the country open to the world and reform was less than $20 million Turnover external trade with $20.6 billion in 1978 rose to USD 118 million 2016.
According to the latest data, China has taken the place of the US in the position of most attractive country for foreign direct investment, while the ability of other countries to attract foreign direct investment steadily decreases. Statistics show that the number of new enterprises with foreign capital, contractual foreign capital and actually utilized foreign capital show a steady growth this year compared to the same period last year [7].
The amount of direct foreign investments in economy of China in 2015, according to preliminary estimates the ministries of commerce of the People's Republic of China, made 126 billion dollars. The surplus of capital investments in a year constituted 5,4 % [9].
As for the first half of the year 2016, direct foreign investments to China grew by 5,1% to 441,76 billion yuans, or $69,42 billion [8].
China is not only the recipient of the investment, but also a major international investor. 12 major state-owned enterprises in China invested last year over $ 30 billion in foreign markets. This equals the total volume of international investment from Latin America. In addition, several small and medium enterprises in China also has made investments in more than 40 countries [3].
The Chinese economy is growing at a rate significantly exceeding the growth rates of the leading economies in the world.
Growth rates of GDP showed the expected result: GDP of the country for January-September, 2016 grew by 6,7 % in comparison with the same period of last year. It is reported by Reuters with reference to the report of the state bureau of China. The official representative of the Public statistical administration Sheng Laiyun declared that the Chinese economy continues stable development - GDP growth in three quarters 2016 constituted 52,997 trillion yuans ($7,87 trillion).
It should be noted that there is a gradual delay of growth rates of economy: in 2010 GDP of China grew by 10,4 %, in 2011 — for 9,2 %, and in 2015 — on 6,9.
Economic relations between China and Russia.
Economic development China and active use of external factors have led to the need for a stable trade and economic cooperation with Russia.
The main advantages of the Chinese-Russian economic and trade cooperation:
1. Between the two countries has created favorable political relations and perfect cooperation mechanism. Thus, in the framework of the regular meetings of heads of government established 11 subcommittees on leading sectors and directions of Russian-Chinese cooperation. Countries established a mechanism of consultations on different directions of cooperation in such spheres as, for example, investments, to stream-
line trade, according to the settlement of trade disputes, and it is extremely important in the field of cross-border and interregional cooperation.
2. There is a complementarity in the industrial structure. So, Russia has advantages in energy, heavy industry and high technology, and China today reached a high level of engineering, manufacturing textiles, household appliances and telecommunications. Hand, through diversified cooperation and connection of its benefits and the development of trade and economic cooperation, are able to reach new positions in international and regional competition.
3. An important advantage of the Chinese-Russian economic and trade cooperation is established for him an effective legislative framework of the two countries. From 1992 onwards, the two governments signed an Agreement on trade and economic relations, the Agreement on encouragement and mutual protection of investments and a number of other intergovernmental agreements, which laid a solid Foundation for bilateral economic and trade cooperation. In 2014 bilateral trade suffered a severe test, but previously created the Foundation for cooperation between the two countries was strong enough. For example, improving trade structure, imports of engineering products from Russia are already rising for the third consecutive year. China took the first place among importers of Russia. Direct investments (outside of Finance) of China to Russia increased by 73.5 % compared to the same period of the previous year. The unprecedented scale of financial cooperation occurs in bilateral relations are fast evolving trade Finance. Successfully promoted the implementation of such major projects as the China-Russian oil pipeline and NPP «Tianwan». A number of projects such as the construction of Russia's cement plants, power plants, homes, roads and ports, is started in sequence. Turnover grew by 63.9 % and reached $ 12 billion
For the end of 2015 the amount of cumulative direct Russian investments in China was 946,9 mln. dollars, amount of cumulative direct Chinese investments in Russia - 8 940,0 mln. dollars.
So, today the Russian side strengthened work on development of the Far East and Siberia, China also realizes the plan of revival of old industrial base of the northeast provinces.
In 2013, heads of the states approved the Program of a cooperation between regions of the Far East and Eastern Siberia of the Russian Federation and the Northeast of China, so it will bring new opportunities for mutual investments and a technical and economic cooperation.
In 2014, during the visit of the Vice-chairman of China of the SI Dinpin to Russia, the entities of two countries in Vladivostok and in Moscow signed more than 20 agreements and contracts concerning a cooperation in a number of areas - such as construction of power plant, reconstruction of seaports, development of agricultural industry and development of mineral resources, a cooperation in forest etc. Besides, the Chinese side wishes to develop a cooperation with Russia in the field of in-
frastructure, to participate in construction of facilities of the APEC summit in Vladivostok 2012 and the Winter Olympic Games in Sochi of 2014. The Russian-Chinese relations develop also within multilateral groups and the organizations. The most important of them are SCO (where India has the status of the observer) and BRIC. SCO for Russia and China - the most important mechanism of coordination of interests in Central Asia. Here interests Russia and China completely match. Both Moscow, and Beijing would like that the states of Central Asia were stable, kept the secular modes and successfully developed the economy [10].
According to Guo Zhiwen (the member of presidium of the Chinese-Russian financial block, the head of the Council of directors of Bank), the Russian-Chinese financial cooperation is object of systematization. It is necessary to begin with planning at the high level of system and complexes, cooperation models, and then China will help to perform fully the national strategy of the "One Belt, One Way" program. Based on requirements to a financial cooperation and economic development, China and Russia founded the long-term plan, and also the new mechanism of a cooperation.
First, it is necessary to strengthen a structure of a payment service provider in national currency, to enhance the mechanism of forming of the exchange rate of yuan in relation to ruble, to develop the market of production products and settlement transactions in national currency of two countries.
Secondly, to create special fund for fight against risks, or insurance fund; to enhance a credit situation, thus promoting creating favorable conditions for investment.
Thirdly, to carry out political intervention in such areas as offshore financing, the international financial leasing and the international investments; to expand servicing types in international financing.
In a bank cooperation it is necessary to expand a framework to a cooperation in the sphere of securities and insurance; to broaden investment channels, to strengthen a cooperation in the sphere of insurance of the credits, trade and a construction; it is active to advance the Chinese-Russian financial union, to expand its borders, to enhance the cooperation mechanism.
According to the latest data, the Chinese bank ICBC headed for the first time Brand Finance Banking 500 for all history of existence of rating, having bypassed at brand cost American Wells Fargo. By February 1, 2017 the cost of a brand of ICBC grew in a year by 32 %, to $47,8 billion. Cumulative constituted $258,5 bln.
In total in rating 45 Chinese bank brands - 11 more are registered. In top-10 entered, in addition to ICBC, the Chinese construction bank estimated at $41,4 billion, Bank of China (Bank of China, $31,3 billion) and Agricultural Bank of China (AgBank, $28,5 billion). As emphasizes Brand Finance, the most fast-growing bank brand this year was Chinese too - Bank of Harbin. In rating he takes the 195th place, but annual increment of cost reached nearly 200 %.
Top 10 most expensive banking brands
ICBC Wells Fargo China Construction Bank Chase Bank of China Bank of America AgBank Citi HSBC Santander Sberbank (24th planee)
47,8
41,6
41,4
яm
яm
ЯH
■H
■i
9,1
Source: Brand Banking 500
■ bin s ■ bin $ (for Sberbank)
As for the Russian bank brands, six entered rating: Sberbank, VTB Group, Alfa-Bank, Gazprombank, Promsvyazbank and «Opening». From them the most highly appreciated - the Sberbank - rose in a year by 11 points, by the 24th line ($9 billion; +33 % by last year). At the same time he took the sixth place among the most expensive European bank brands (the leader -HSBC - is estimated at $20,7 billion).
Conclusion. Rapid economic growth of China, its accelerated integration into world economy and, as a result, this and future influence on the international relations made the analysis of a role of the People's Republic of China in world economy very hot topic in recent years.
The Chinese economy develops the rates considerably exceeding growth rates of the leading economies of the world. Progress of economic development of China is expressed in growth of industrial outputs and
occupation of the leading line items in the world on production of many types of products. China is a world leader in production of coal, steel, cement, grain, meat, cotton, is on the leading world line items on oil extraction, electricity generation.
It is possible to distinguish policy of the state, grandiose capital investments and, in particular, foreign investments from the leading factors of economic growth of China.
Also it is possible to distinguish from the main perspective directions of a trade and economic cooperation of Russia and China: firstly, the power cooperation still is the basic, the parties shall expand a cooperation in this sphere and raise its level, adhere to diversified approach, that is develop communications in the field of liquefied natural gas, nuclear power, use of new technologies and an investment cooperation; secondly, a cooperation in the sphere of high technologies and innovations.
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