Financial environment in China energy

Financial environment

Being very top-down, the structure of the Chinese banking system roughly mirrors that of the Chinese government. China’s central bank is the People’s Bank of China, which serves a role similar to the United States’ Federal Reserve. There are four large state-owned commercial banks in China: The Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China, and the Agricultural Bank of China. There are also a large number of smaller banks in China that are jointly owned by government and private interests. Local banks that provide large-scale financial services include village and township banks (VTBs), rural credit cooperatives (RCCs), and branches of the Postal Savings Bank of China (PBSCs).


Microcredit and microfinance are extremely important sources of finance that are often leveraged by social enterprises. The microcredit market in China is currently growing at an explosive rate. As of 2014, there were about 6,000 microcredit providers in China; 75% of which had only been in operation for three years or less. These microcredit providers consist of NGOS, quasi-governmental organizations, social enterprises, rural development associatons, and the AliFinance arm of Chinese e-commerce giant Alibaba Group. AliFinance alone has provided over 230,000 microentrepreneurs with loans since its launch in 2011. It has a loan portfolio of over RMB 80 billion ($13 billion USD).


Unfortunately, since the sector is relatively new, it is resting on shaky ground. Many microcredit companies lack adequate access to credit reporting information, which is held by the People’s Bank of China. This makes doing business for them more risky than it would be otherwise. However, microfinance is an extremely effective way for social enterprises to help their customers afford their product. Because many served by social enterprises have very low disposable income, they often are not able to pay the high upfront costs often associated with energy-related products. The use of microfinance is an excellent way to circumvent this problem. A social business operating in China may want to consider partnering with a local microfinance institution to help their products reach those who need them most.


Barriers to entry and scale

Barriers to entry into Chinese markets are numerous and have to do with the nature of local business environments, investment practices, and government policy. This section describes what factors can make entering the market and doing business particularly challenging in China.