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Extract and translated from the French E-bulletin China Analysis – Les Nouvelles de Chine n°11-12, Dec. 2006-Feb.2007, pp. 9-11
French Editor: M.Meidan. Translation: Michael Black
Synthesis and commentary by Thibaud Voïta based on:
– Zou Xilan, Tan Jialong, "Minsheng's tenth birthday prepares the next hundred years", Zhongguo Jingji Zhoukan, December 4 2006
Minsheng is an oddity on the Chinese financial landscape: it is China's first entirely private bank. In this article the Zhongguo Jingji Zhoukan, published by the very official People's Daily group, sings the praises of the company on the occasion of its tenth birthday.
Zou emphasises that the creation of Minsheng in 1996 was the end of an era. Before then, banks had a single shareholder, very low profits and major quantities of bad debt (the well-known NPL, or non performing loans). The system was dominated by the four big State commercial banks, whose restructuring had not yet been really undertaken.[1] The direct consequence was a dangerous weakening of the banking sector. Minsheng is therefore considered to be "the first experiment in the reform of the Chinese financial system" (中国金融体制改革的第一块试验田). It was successfully floated on the stock market in 2000, and succeeded in applying innovative management and in obtaining major returns on investment without accumulating NPL.
The group's history sheds interesting light on the advances made by the private sector in China. The creation of this first private Chinese bank was not the result of a purely private initiative, in the sense that it was possible only with the support of the government (in this case, that of Zhu Rongji).
The idea officially emerged during the 7th Congress of the National Federation of Industry and Commerce (全国工商联), in 1993. The non-state enterprises[2] took the opportunity to complain of the lack of non-state financial structures and of the difficulties they faced in obtaining loans. These complaints were subsequently reported to the Council of State Affairs (CSA) by the Federation's president, Jing Shuping. It was then that he had the idea of setting up Minsheng.
The article does not state what happened between 1993 and 1996. However, the bank was officially registered on February 7 1996. In the interval, Jing Shuping had obtained the blessing of then Prime Minister Zhu Rongji. The first innovation was that Jing Shuping stated his determination that Minsheng should have shareholders' meetings, a board of directors, an auditing committee, a commercial network and independent management. To Zhu Rongji, Minsheng constituted the first step in the reform of the commercial banking sector.
The bank's management agree that the story of Minsheng can be divided into three stages.
1. Creation and expansion, 1996 – 1999
On December 1st 1996, 59 companies became shareholders in the bank with an initial capital of 1.38 billion yuans. As well as its "western-style" functioning, Minsheng chose to innovate in two other areas in comparison with its Chinese competitors. Firstly, from 1996, it hired Price Waterhouse Cooper to audit its accounts. This was the first time a Chinese bank had called in international auditing consultants. Secondly it chose to put profits at the heart of its strategy, by linking its employees' salaries to the bank's profits[3].
The bank thus expanded in the first few years, until the end of 1999. It opened branches in the cities of Shanghai, Shenzhen, Wuhan, Taiyuan, Dalian, and Hangzhou, and developed international services as well as a range of activities.
2. Crisis and restructuring, 1999
However, by the end of 1999 the bank had accumulated 8.72 % of NPL. Its capitalisation had fallen to 800 million yuans. The management then began to consider restructuring.
3. A new team and more expansion, from 2000 to today.
In April 2000, the bank elected a new president of its boeard of directors: Dong Wenbiao. It then embarked on "the development fast track". (民生银行发展进入快车道). At the end of 1999, the bank's total assets amounted to 25.6 billion yuans ; a year later they had risen to 69.7 billion. The total of loans extended rose from 18.9 billion in 1999 to 37.6 in 2000.
Since then, the bank has been quoted on the A market, and its capitalisation reached over 20 billion in 2005 (as against the initial 1.3 billion at its creation). An IPO was also planned on the Hongkong market in 2005, but indefinitely postponed because of the overly large number of mainland companies who chose that moment to seek flotation on the stockmarket[4].
Minsheng : results in 2006
Billions of RMB
| Beginning of 2006 | 3rd semester 2006 | Increase | |
| Value of total assets | 557.3 | 650.2 | + 17 % |
| Total loans extended | 378.1 | 413 | + 14 % |
| Reserves | 488.8 | 549.1 | + 12 % |
To these results must be added an NPL rate of 1,21 %, the lowest in the country.
At present, Minsheng's new president, Eddie Wang, has stated his desire to develop retail banking and consumer loans, and to reduce the bank's dependence on capital. For example retail banking activities presently amount to 15% of Minsheng's total activities, as against 3% in 2003, the objective being to reach 30 % in 2008.
Dong Wenbiao hopes eventually to make Minsheng into a bank which can take on its competitors in the international market. He sees the fourth and next stage in the bank's history as that of its international expansion.
How can this success be explained ?
Firstly the bank has developed a real capacity for management innovation. Its Guangzhou subsidiary, set up on December 18 1996, is mentioned as an example. The article refers to structural reforms in the functioning of management and organisation which this subsidiary has undertaken, but does not state their exact nature.
Zou sees Minsheng's success as above all to be found in a culture of respect for the rules (合规文化), in particular those concerning NPL (see the Cooke ratio in the Basle 1 agreements).
Also to be noted is Minsheng's determination, since its creation, to function in the manner of a western bank, thus setting itself apart from its Chinese competitors. It is probably this foreign-inspired management which allowed it to achieve such a low rate of NPL.
Moreover the bank does not hesitate to call on personnel with solid experience of foreign banks. Eddie Wang, who was appointed president in July 2006, was previously president of HSBC China. It seems that the bank has gone so far as to develop a policy aimed at attracting qualified personnel from these foreign banks: the bank's cadres include former cadres from Citibank, HSBC, UFJ, etc. Also to be noted is the SAP (Systems, application, and products for data processing) agreement between Minsheng and Accenture.
This praise may seem surprising on the part of an organ of the official press. All the more so as a few months ago Minsheng was the target of criticisms from the Party. At the time the bank was targeting foreign shareholders who, given Minsheng's particularly dispersed shareholder structure, were likely to become the majority. The bank would then have come under foreign control, which was something the authorities could not accept.
This article may be a manifestation of a real Chinese desire to reform the banking sector, and to tighten links with powerful players in the non-state sector.