At the end of last December, the deposits in Chinese financial institutions in both the domestic currency and foreign currencies stood at RMB 47.84 trillion, a rise of 19.30% year on year. The balance of the loans denominated in Renminbi reached 46.62 trillion, up 19.73% compared to the corresponding period of last year. On the side of structure, the fiscal deposits decreased considerably, compared to the sharp growth of the deposits of residents and enterprises. On the side of term, the outstanding demand deposits of the residents and enterprises grew 16.12% and 6.30% over the previous year respectively, while the outstanding time deposits saw an even higher increase of 32.67% and 28.74% respectively. However, the trend of the time deposits slowed down somewhat in terms of the link relative ratio compared to the prior month.

At the end of last December, M2 expanded 17.82%, terminating the continuous downward trend since last May. The rapid M2 growth indicated the monetary policy had become relatively inflationary after a series of interest rate cuts. In the fourth quarter of last year, the positive fiscal policy and the inflationary monetary policy started to take effect, and M1, a barometer for the economic activity, also presented a rebound, signifying the economic climate slightly changed for the better.

As a result of the widespread pessimistic expectation for the economic prospect in 2009-10, Chinese enterprises will have to face the most difficult two years in operation. On the bank side, the average time lag from the credit extension to the formation of non-performing loans is 2 years. Therefore, the rebound in the non-performing loans among the loans extended during the rapid economic growth period and the high interest rate period is possible to take shape in the first half of 2009, and this trend is forecasted to span from the second half of 2009 through 2010. These factors will come as a true touchstone for the asset quality of Chinese banks.

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Chapter One: China Banking Operation Basic Status

1.1 Deposits

1.1.1 Deposits in financial institutions expanded considerably

1.1.2 Deposits of enterprises and residents increased remarkably, compared to great decline of fiscal deposits

1.1.3 Trend of time deposit continued, accompanied by a growth slowdown by the link relative ratio month on month

1.2 Loans

1.2.1 Bank credit rebounded

1.2.2 Loans of all terms picked up in December

1.2.3 Note discount took a reduced proportion, and phenomenon of banks' reluctance to make loans mitigated

1.3 Liquidity

1.3.1 M2 growth accelerated, ending continuous downward trend

1.3.2 M1 growth lagged behind M2, showing low inflation risk

1.4 Interbank Market

1.4.1 Market transactions remained brisk

1.4.2 Money market interest rate kept declining

1.5 Money Supply for Foreign Exchange Took Rising Proportion in Total Money Supply Month on Month

Chapter Two: China Banking Operation Status

2.1 Total Assets & Liabilities of Banking Financial Institutions Grew Steadily

2.1.1 Generic situation and structure

2.1.2 By institutions

2.2 Non-performing Loans of Commercial Banks

2.2.1 Dramatic reduction in outstanding non-performing loans came from policy-related spin-off of such loans of Agricultural Bank of China

2.2.2 Structure of non-performing loans

2.2.3 Non-performing loans by institutions

2.3 Operating Result of Listed Commercial Banks

Chapter Three: Dynamics of China Banking Policy, Reform and Opening Up

3.1 Policy Dynamics

3.1.1 CBRC requires rigorous control over loans to "Two High" industries

3.1.2 Banks guard against automotive loan risks

3.1.3 Bank-background QDIIs approved to invest in Japanese stock market

3.1.4 Commercial banks win green light to trade gold futures

3.1.5 Medium and large banks may establish rural finance market divisions

3.1.6 Micro loan companies start piloting

3.1.7 Commercial banks allowed to provide loans for quality VC

3.1.8 CBRC bans financing-oriented trust guarantee business offered by commercial banks

3.1.9 CBRC warns against the risk of illegal cash withdrawal with credit cards

3.1.10 CBRC bans foreign exchange margin trading offered by financial institutions

3.1.11 Central bank increases credit size for commercial banks

3.1.12 Interest rate on micro secured loans allowed to rise 3%

3.1.13 Strengthen commercial housing credit management

3.1.14 CBRC launches urgent investigation on US-related assets

3.1.1.5 Central bank cut down benchmark interest rates on loans and reserve ratio several times

3.1.16 Lower limit of interest rate on personal housing loans cut 30% for selected borrowers

3.1.17 Piloting of new rural financial institutions expanded

3.1.18 Central bank lifted rigid control over credit sizes of commercial banks

3.1.19 CBRC first issues small enterprise credit finance license

3.1.20 CBRC allows M&A loans

3.1.21 CBRC plans to adjust capital adequacy of commercial banks according economic cycle

3.2 Banking Reform Dynamics

3.2.1 Bank of China

3.2.2 Industrial and Commercial Bank of China

3.2.3 China Construction Bank

3.2.4 Agricultural Bank of China

3.2.5 China Merchants Bank

3.2.6 Township banking reform dynamics

3.2.7 Bank of Communications first launches personal gold futures investing business

3.2.8 Ministry of Finance accepts Bank of Communications equity transferred by China SAFE Investments Ltd.

3.2.9 Shenzhen Development Bank secures approval to issue RMB 7 billion subordinated bonds

3.2.10 China Development Bank buys in Shenzhen Financial Leasing Co., Ltd.

3.2.11 Beijing Rural Commercial Bank successfully places RMB 1.2 billion subordinated bonds

3.2.12 China Everbright Bank officially submits IPO application

3.2.13 China Development Bank participates in Barclays Bank's capital increase

3.2.14 China Everbright Bank signs strategic partnership agreement with China Reinsurance (Group) Corporation

3.2.15 China SAFE Investments Ltd. injects RMB 130 billion into Agricultural Bank of China

3.2.16 First micro loan company opens in Shanghai

3.2.17 Shanghai Pudong Development Bank buys 18% equity in Laishang Bank for RMB 378 million

3.2.18 First township bank sponsored by China Construction Bank officially opens

3.2.19 China Development Bank Co., Ltd. created on December 16

3.3 Banking Opening up Dynamics

3.3.1 Opening up dynamics of foreign banks

3.3.2 CBRC cooperates with Monetary Authority of Singapore in banking QDII supervision

3.3.3 Industrial and Commercial Bank approved to open Dubai subsidiary

3.3.4 First case of Taiwan bank's participation in China Mainland bank in an indirect way

3.3.5 Postal Savings Bank of China allowed to conduct negotiated deposit deals with foreign-funded banks in China

3.3.6 Rockefeller joins hands with Societe Generale to attack China private banking market

3.3.7 Agricultural Bank of China forges strategic alliance with Singapore Exchange Ltd.

3.3.8 Agricultural Development Bank of China signs MOU on cooperation with National Australia Bank

3.3.9 Bank of Beijing joins hands with Bank of Nova Scotia to march into fund business

3.3.10 China UnionPay inks memorandum on strategic cooperation with DBS Bank

3.3.11 Deutsche Bank offers personal RMB services in China

3.3.12 Industrial and Commercial Bank of China qualified by New York State to operate business

3.3.13 HSBC enters Yong'an of Fujian Province to accelerate deployment in rural market

3.3.14 Bank of East Asia launches first foreign bank-issued credit card 

3.3.15 Bank of China signs cooperation MOU with Boeing

3.3.16 Bank of China sets up subsidiary in Switzerland

Chapter Four: China Banking Outlook and Analysis of Benefits of Major Banks

4.1 China Banking Outlook

4.1.1 Monetary policy direction had essential change

4.1.2 Banking supervision to become more prudent

4.1.3 Credit asset quality of banks faces challenge

4.1.4 Central bank likely to have frequent rate cuts in H1, 2009

4.1.5 Credit extension in H1, 2009 expected to take 70% of the full-year total

4.1.6 Interest spread narrows, testing profitability of banks

4.1.7 Banking likely to face severe asset quality problem

4.2 Operating Result Profiles of Certain Banks

4.2.1 Shanghai Pudong Development Bank

4.2.2 China CITIC Bank

4.2.3 Shenzhen Development Bank

4.2.4 China Everbright Bank

4.2.5 Industrial Bank Co., Ltd.

4.2.6 Agricultural Bank of China

4.2.7 Bank of Nanjing

4.2.8 China Development Bank

4.2.9 Agricultural Bank of China