China’s postal savings system is the sort of huge domestic financial institution that lurks for years in the shadows of a financial system. A self-contained fiefdom of vested interests overseen by a ministry whose concerns and connections are essentially domestic and local, it is accustomed to being unperturbed by the sunlight of financial reform filtering through elsewhere. Yet with 40,000 branches in every corner of the country serving 500 million rural and small and family business customers that the big state-owned banks ignore, it is potentially a potent platform for opening up retail financial services to a broader range of Chinese to stimulate demand immediately and to aid the economy becoming more domestic-demand driven in the longer term.
With that in mind, the postal savings system was split off from the postal service as the Postal Savings Bank of China in 2007. Its parent, China Post Group Corp., moved under the regulation of the finance ministry. The bank started offering credit services to its traditional deposit taking. At the end of 2011, it had more than 4 trillion yuan ($630 billion) in assets, making it the country’s seven-largest bank by assets. It is prepping for a planned stock listing.
Loan making and outside shareholders represent a new world. Yet some old ways clearly linger. Tao Liming, the bank’s president since 2007, is subject of the latest corruption scandal to hit the country in this leadership transition year. Tao is under Party investigation for bribery, illegal fund-raising and illegal lending. He has reportedly been detained. The director of the bank’s financial institutions department, Chen Hongping, is also implicated. Press reports suggest others are, too. The investigation is thought to have followed an audit by the National Audit Office at the end of last year that brought to light what were then described as ‘corporate management problems’.
Bankers are no less likely to be involved in corruption than executives in any other industry. That, after all, is where the money is. It is rare, however, for corruption cases involving executives at China’s big banks to be made public. Yet two weeks ago a vice president at Agricultural Bank of China, the country’s third-largest bank by market value and the only one with a larger branch network than the Postal Savings Bank, was also reportedly put under investigation. He is alleged to have approved loans to a property developer in return for the developer helping him over gambling debts in Macau. In 2010, a former vice president of the China Development Bank was given a suspended death sentence for taking bribes in return for providing loans to businesses.
Each case will be particular to its circumstances. Nor are anti-corruption drives unusual in leadership transition years. They are factional politics by another name. Some cases are meant as this-far-but-no-further messages in a country where corruption is systemic. Yet so important is driving continued economic growth to the Party’s right to rule, and so central has financial reform come to that cause, that no financial institution nor its executives can expect to remain unscathed if their shadowy presence is seen as an impediment to the Party’s legitimacy.