Executive Summary
China Development Bank is among the most essential financial institutions in China. This is because it is among the vital drivers of economic development and growth within the country. Although the institution was characterized by relatively high levels of growth between 1994 and 1997, it has the potential to exude better performance. The government of China is a major stakeholder of this financial institution, hence this paper will seek to highlight the manner in which it influences the operations of this bank. At the moment, its primary dilemma is how it will manage to carry out market oriented reforms, given that the government is its principal shareholder. All financial institutions are normally affected by the actions of their stakeholders. As a result of this, this paper will discuss the kind of roles that are being played by both the secondary and primary stakeholders. The bank is also experiencing a dilemma with respect to the manner in which it is doing business. This paper will discuss the dilemma which the bank is experiencing as well as provide some of the possible solutions. Chen Yuen proposes that China Development Bank should strive to adopt international Banking Standards so as to attain this objective. This paper assesses the various factors that are brought about by the adoption of Chen Yuen’s proposal. This is because Chen is one of the most proficient Chinese technocrats in the field of finance.
Introduction
China Development Bank was founded in the year 1994. The financial institution was established by the government, and it is managed under the Ministry of Finance. This bank is managed by a governor who is considered the same level as a cabinet minister. China Development Bank is not a conventional bank. This is because it is a type of bank that is known as a policy bank. There are other two banks which are similar to China Development Bank in the country. The primary intention of policy bank is to finance various infrastructure and agricultural projects throughout the country. Financing such projects serve as one of the key avenues through which a country can be able to realize significant economic development and growth.
Over the years, China Development Bank has undergone a series of changes as well as transformations. These changes and transformations are geared towards improving the manner in which the bank is operating. Most of the changes that have taken place at the China Development Bank were initiated by Chen Yuen. He is the appointed managing director of China Development Bank at the time when the institution was experiencing a lot of operational and economic challenges. Chen Yuen strived to develop and put in place mechanisms that enabled the China Development Bank to turn around its misfortunes hence becoming one of the most successful financial institutions of the twenty first century.
Major Stakeholders
Government of the People’s Republic of China
The government of China is among the major stakeholders of China Development Bank. This is because this financial institution was formed by the Ministry of Finance. At its inception, China Development Bank received funding which was up to the tune of approximately six billion dollars. The government required China Development Bank to use these finances for the purpose of financing various medium terms, long term, and short term infrastructure projects that were being initiated throughout the country. This implies that China Development Bank was to serve as one of the primary drivers of economic development and growth for the citizens of China. Since the government is one of the primary stakeholders of China Development Bank, it made certain that all lending transactions were on the basis of the policies that it had put in place.
Borrowers
The borrowers of China Development Bank are part of the primary stakeholders of this financial institution. This is because China Development Bank is a financial institution whose fundamental mission is to provide financing for various infrastructure projects. This means that this financial institution cannot be able to achieve its mission and objectives without the presence of borrowers. Prior to the inception of China Development Bank, the government had acknowledged there was a relatively high shortage of capital within the country. Although, the country had well developed capital markets not all companies were able to raise capital through the use of this avenue. As a result, the government chose to develop China Development Bank, which will serve as one of the major players within the debt market.
Management of the Bank
The management of China Development Bank is also considered as part of the key stakeholders of this banking institution. This is because it has a direct impact on all the minor and major operations of this bank. They are responsible for developing strategies that will enable the institution to achieve its mission. The management team of this banking institution plays a substantive role as far as the performance of the Bank is concerned.
Major Dilemma
The major dilemma of China Development Bank is how it will move to market oriented reforms. This is because China Development Bank is based on traditional mode of policy based banking. This is a factor that has negatively affected financial performance of the bank. During the period when the bank was operating under the traditional model of policy based banking, it had non performing loans that were estimated to be forty percent of the total assets of the bank. This serves as an indicator that the traditional mode of policy based banking is not a suitable strategy for operating China Development Bank.
However, it would be extremely challenging to move the China Development Bank from the traditional mode of policy based banking. This is because the Ministry of finance is the primary shareholder of this financial institution. This is simply one of the key ministries within the government of China. This is a government that is characterized by deep beliefs about socialism. As a result, this government makes certain that almost each and every project being initiated within the country takes into account the social aspect.
Chen Yuen’s Perspective
Chen Yuen’s perspective needs to be taken into account so as to facilitate the transformation of China Development Bank. Chen is an industrial economist by profession, and he has vast working experience within the field of economics and finance. Given his vast experience, Chen is of the opinion that China Development Bank should abide by the international banking standards, as well as banking management. He also expressed that the bank should develop a new lending system. In addition, Chen also proposes that the bank should adopt reforms that are market oriented. Chen’s views need to be taken considered, to facilitate the establishment of a solution to the dilemma.
Conclusion
Evidently, China Development Bank plays a vital role in the economic growth and development of China. As a result, the major stakeholders of this institution should strive to facilitate the implementation of the kind of reforms that are being proposed by Chen. By so doing, China Development Bank will be able to enhance its level of effectiveness with respect to the provision of loans, as well as its profitability.
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