RDP 2014-10: Financial Reform in Australia and China Appendix B: Time Line of Chinese Financial Reforms

1980 Resident entities and foreigners are permitted to retain or sell a portion of their foreign exchange earnings; foreigners are permitted to remit profits abroad
1981 A market-based foreign exchange system begins to be used alongside the official exchange rate system, with an ‘internal merchandise trade settlement rate’ established as a benchmark for pricing (Le 2007)
1982 The State Administration of Foreign Exchange (SAFE), established in 1979, is made a subordinate agency to the People's Bank of China (PBC); the SAFE replaces the Bank of China as coordinator of market-based foreign exchange activities
1983 The PBC is designated as China's central bank, and authorised to vary interest rates by 20 per cent around benchmark rates set by the State Council
  The Agricultural Bank of China is permitted to trial more flexible interest rates on working capital loans to SOEs
1985 The internal merchandise settlement rate for market-based foreign exchange transactions is merged with the official exchange rate
1986 The official exchange rate is devalued by around 15 per cent to CNY 3.7 per US dollar
1987 Large banks are permitted to increase interest rates for working capital loans by up to 20 per cent more than (1.2 times) the benchmark rate
1989 The official exchange rate is devalued by around 20 per cent to CNY 4.7 per US dollar
1990 Commercial banks and urban credit cooperatives are allowed to increase interest rates for working capital loans by 1.2 times benchmark rates
  Increases in deposit rates above the benchmark are prohibited for all financial institutions
  The Shanghai Stock Exchange is opened
1991 The Shenzhen Stock Exchange is opened
  Bond repurchase (repo) facilities are introduced on a number of securities trading platforms
1993 The State Council issues a decision on financial system reforms, including a strategy for interest rate deregulation; a decision is taken to establish a market-based exchange rate regime
  The PBC begins issuing central bank bills
1994 Official and market-based exchange rates are unified at the prevailing market rate (CNY 8.70 per US dollar) resulting in an official devaluation of around 35 per cent
  Changes are made to the foreign exchange management system, including the creation of the China Foreign Exchange Trading System (CFETS)
  The government formally ceases borrowing from the PBC
1995 The Central Bank Law confirms the PBC's status as the central bank
  The Commercial Banking Law requires banks to implement a maximum loan-to-deposit ratio of 75 per cent, and adopt a minimum capital adequacy ratio
  Official efforts are made to encourage the development of a market for short-term debt instruments (largely bankers' acceptances)
1996 China formally achieves current account convertibility; foreign-invested companies are allowed to retain foreign exchange earnings subject to limits set by the SAFE
  The floor for lending rates is set at 0.9 times benchmark rates and the ceiling is set at 1.2 times benchmark
  Interbank lending rates are deregulated
  A unified interbank funding market is created, centred on the China Interbank Offered Rate (CHIBOR) benchmark
1997 Authorities impose a peg to the US dollar (at the prevailing rate of CNY 8.28 per US dollar)
  The SAFE authorises the Bank of China to offer forward foreign exchange transactions to institutional customers
  Interbank repo rates are deregulated
1998 The ceiling for lending rates is set at 1.1 times benchmark rates
  Lending rate ceilings for small and medium-sized enterprises are increased to 1.2 times benchmark rates; the lending rate ceiling for rural credit cooperatives (RCCs) is increased to 1.5 times benchmark rates
  A separate securities regulator – the China Securities Regulatory Commission (CSRC) – is established
  Commercial banks are permitted discretion in setting discount rates for bills around the rediscount rate determined by the PBC
1999 Lending rate ceilings for small and medium-sized enterprises are increased to 30 per cent
  Banks are given flexibility to negotiate contract interest rates for large-scale commercial deposits with insurance companies
  Interbank markets for bonds and repos are formally established, with floating interest rates for government bonds and bonds issued by ‘policy’ banks (China Development Bank, Export-Import Bank of China and the Agricultural Development Bank of China)
  The Ministry of Finance issues government bonds in the interbank market using a public auction system for the first time
  Four asset management companies are established to address non-performing loans in the banking system
2000 Floors on low-value foreign currency deposits are abolished
2001 China joins the World Trade Organization, which requires the removal of numerous restrictions on foreign entry and ownership
2002 A number of RCCs are allowed to raise lending rates up to twice the benchmark rate on a trial basis
  A small-scale trial to increase ceilings on RCCs' retail deposit rates is aborted
  The Qualified Foreign Institutional Investor (QFII) program is introduced to allow some foreign investment in China A Shares
  Inward foreign direct investment restrictions for many industries, especially in the services sector, are eased (Prasad and Wei 2005)
2003 A separate banking regulator – the China Banking Regulatory Commission (CBRC) – is established
  An official renminbi clearing bank is appointed in Hong Kong, marking the start of the development of the offshore renminbi market
2004 The floor on interest rates is abolished for all deposits
  Ceilings on almost all lending rates are abolished
2005 The currency peg to the US dollar is removed; the renminbi is permitted to fluctuate against an undisclosed basket of currencies and in a +/–0.3 per cent band around its daily central parity rate against the US dollar
  The PBC introduces outright forward foreign exchange (FX) contracts to the CFETS
2006 Renminbi FX swaps are introduced, over-the-counter trading of the renminbi is permitted and a market-making system is created
  The Qualified Domestic Institutional Investor (QDII) scheme, which allows approved Chinese entities to invest in approved foreign securities, is introduced
2007 The Shanghai Interbank Offered Rate (SHIBOR) benchmark is introduced
  The renminbi's daily trading band against the US dollar is widened from +/–0.3 per cent to +/–0.5 per cent around its daily central parity rate
  Mainland Chinese banks are permitted to issue renminbi-denominated bonds in Hong Kong (dim sum bonds) provided that the proceeds are remitted back to mainland China
2008 The renminbi/US dollar exchange rate is stabilised at around CNY6.84 per US dollar
2009 A pilot scheme to trial renminbi trade settlement is conducted between five mainland Chinese cities and Hong Kong, Macau and ASEAN countries
2010 The renminbi exchange rate is allowed to resume steady appreciation against the US dollar
  A scheme allowing approved foreign central banks and other sovereign investors, official renminbi clearing banks and ‘participating banks’ [33] to invest in the interbank bond market is introduced
  The renminbi trade settlement scheme is expanded to cover trade between 20 mainland Chinese provinces and the rest of the world
2011 The renminbi QFII (RQFII) scheme, which allows approved foreign investors to invest renminbi that has been raised in the offshore market in approved onshore securities, is introduced
  Chinese firms are allowed to apply to take renminbi offshore for overseas direct investment in foreign firms
2012 The PBC widens the floating range of deposit rates to between 0.9 and 1.1 times benchmark and reduces the floor on lending rates to 0.7 times benchmark
  The renminbi's trading band against the US dollar is widened from +/–0.5 per cent to +/–1 per cent around the PBC's daily fixing rate
  QFIIs are permitted to invest in the interbank bond market (subject to quotas)
  The renminbi trade settlement scheme is expanded to cover all trade with China
2013 All restrictions on lending rates are abolished, with the exception of rates on individual mortgages (reflecting concurrent efforts to control housing prices)
  Controls which previously linked bill discount rates to the official rediscount rate are removed
  Banks are permitted to set negotiable rates on interbank certificates of deposit
  A loan prime rate is established by the PBC as a guide to pricing in credit markets
2014 The renminbi's trading band against the US dollar is widened from +/–1 per cent to +/–2 per cent around the PBC's daily fixing rate


Participating banks are banks with an agreement with the Bank of China (Hong Kong) (BOCHK) such that they have direct access to the offshore interbank renminbi market and are able to effect approved cross-border renminbi transactions via the BOCHK. [33]