Li Wuchen is 33 years old and has worked as a stock broker for three years, but he looked as nervous as a high school student facing the SAT as he stood outside a university building on a recent Saturday morning and studied a government-issued manual one last time.
“This is my third time taking the test,” he said. “I must pass by the end of this year or lose my job.”
Chinese regulators have stepped up their policing of banks, ordered them to limit their counterparty risk in overseas derivatives transactions and reviewed trust companies to make sure that they are not taking inappropriate risks. But China’s most unusual response to international financial turmoil has been the government’s decision to increase rapidly the number of qualification tests that are required for workers in the financial sector. The government has also increased the number of people required to take these tests.
The improvements that China is starting to make in its financial regulatory system are likely to be tested heavily in the next few months.
Recently, Chinese banking regulators have taken a series of steps to encourage banks to lend much more heavily, as part of a broader government effort to halt an economic slowdown unfolding with alarming speed.
State-controlled banks — and almost all banks in China are still majority-owned by the government — are being told to lower the required down payments on home mortgages, lend more money to exporters and provide much greater financing for local and provincial governments engaged in building new roads and other infrastructure projects.
Yet the longer-term health of the Chinese economy may depend on regulators’ and bank managers’ ability to accomplish all of this without impairing the credit quality and risk management systems still being introduced here. Failure could expose Chinese banks to the kinds of problems now bedeviling their Western rivals.
Testing managers could be part of the answer. China has a long history of relying much more heavily than Western countries on tests to choose winners and losers — imperial officials were tested for their knowledge of literature as early as 2,000 years ago. Mao Zedong (毛澤東) eliminated many examinations, but Deng Xiaoping (鄧小平) began to revive them after 1978, partly as a way to weed out incompetent officials who had risen through the ranks based only on political connections or seniority.
As the number of college graduates rises steeply in China and universities struggle to maintain the quality of education in a rapid expansion, the number of exams is rising even more quickly. That is particularly true in financial services, as the government worries about repeating the West’s financial mistakes.
More cautious and more heavily regulated, Chinese financial institutions appear to have weathered the crisis better so far. Chinese banks require down payments of 20 percent to 50 percent on mortgages to discourage borrowers from reneging on debts, and since 2004 have been forced by the government to limit their real estate lending.
But like the US and many other countries, China faces falling real estate prices and steeply declining share prices — and regulators are increasingly worried.
“Bad loans are already showing an upward trend, especially in the property market, where the mortgage default risk is growing at an accelerating pace,” said Jiang Dingzhi, the vice chairman of the China Banking Regulatory Commission, at a conference this fall. He provided no details, nor have Chinese banks released any recent updates on their nonperforming loans.