Banking & Finance Guide 2025: China

The People’s Republic of China has established a multi-level and multi-agency legal system in the field of banking and finance, forming a comprehensive legal framework that is structured under a hierarchy of legal instruments. This begins with national legislation enacted by the National People’s Congress and its Standing Committee; for example, the Commercial Bank Law, the Securities Law, the Trust Law, the Insurance Law, the Futures and Derivatives Law, and the Anti-Money Laundering Law. These laws form the statutory basis for financial regulation and are supplemented by administrative regulations, ministerial rules, and guidelines issued by regulatory agencies.

China’s financial regulatory framework is overseen by several key government institutions, each with defined responsibilities under the law.

• The People’s Bank of China (PBoC) is the central bank and primary authority for monetary policy and financial market infrastructure.

• The National Financial Regulatory Administration (NFRA), which assumed the functions of the former China Banking and Insurance Regulatory Commission, is the primary regulatory authority for the banking and insurance sectors, overseeing commercial banks, trust companies, wealth management subsidiaries, insurers, and other non-bank financial institutions.

• The China Securities Regulatory Commission (CSRC) is a ministerial-level body under the State Council that:

  • Regulates the securities and futures markets, overseeing the issuance and trading of stocks and bonds;

  • Enforces disclosure and transparency rules; and

  • Supervises securities, exchanges, fund managers, and broker-dealers.

• The State Administration of Foreign Exchange (SAFE) operates under the PBoC and manages China’s foreign exchange reserves, implements foreign exchange controls, and supervises cross-border capital flows.

In China, banks adhere to robust prudential standards aligned with Basel III, while incorporating local adaptations. Commercial banks must maintain minimum capital ratios – including an 8% total capital adequacy ratio – plus capital conservation and countercyclical buffers. Systemically important banks face additional surcharges.

Liquidity requirements are tiered based on bank size: large banks (assets over CNY 200 billion) must meet a 100% liquidity coverage ratio and net stable funding ratio, while smaller banks follow simplified metrics. All institutions are subject to reserve requirements and credit concentration limits, such as the 10% single-borrower exposure cap relative to capital.

Other financial institutions must comply with sector-specific requirements respectively stipulated by measures on the administration of trust companies, securities companies, and insurers.

In China, banks and financial institutions are subject to comprehensive conduct-of-business regulations designed to ensure fairness, transparency, and consumer protection. Key measures include the Measures for the Administration of Consumer Rights Protection and the Measures for the Administration of Investor Suitability Management, which require institutions to accurately match financial products to clients’ risk profiles, provide clear and complete information, and avoid misleading sales practices or forced bundling.

Broader protections are also provided under the Civil Code and other financial and non-financial regulations, which require financial institutions to adhere to principles of voluntariness, fairness, and integrity, and establish robust internal systems to protect consumer rights, especially regarding personal data and rights to redress.

China has introduced several significant regulatory and policy changes impacting the banking and financial sectors in recent months. These measures reflect a multi-pronged strategy by Chinese authorities to reinforce macroeconomic stability, strengthen risk management in the financial system, and accelerate support for key industrial sectors amid ongoing domestic and global uncertainties.

For instance, the PBoC established a new Financial Stability and Development Committee on August 1 2025. This macroprudential oversight body is tasked with enhancing risk monitoring across the financial system.

In a parallel effort to channel capital towards strategic economic goals, Chinese regulators released joint guidelines on August 5 2025, aimed at expanding medium- and long-term bank financing for high-tech manufacturing sectors. These sectors include integrated circuits, advanced materials, medical equipment, and industrial software. The policy framework provides fast-track channels for financing activities such as listings, bond issuance, and M&A. It also encourages financial institutions to develop tailored credit and investment solutions for firms operating in these prioritised industries, underscoring China’s continued emphasis on self-reliance in strategic technologies.

In China, financial institutions must obtain sector-specific approval from regulators such as the NFRA (for banking and insurance), the CSRC (for securities and futures), or the PBoC (for payment services) before applying for a business licence with the State Administration for Market Regulation. The licensing process requires detailed documentation, including feasibility studies and risk policies, and is subject to stringent requirements aimed at ensuring stability, transparency, and consumer protection.

In China, the licensing timeline for financial institutions varies by regulator and applicant type. Domestic applications typically take two to four months from preparation to final registration. Regulators generally decide within 20 to 180 days after receiving complete documents, as stipulated by the Administrative Licensing Law and sector-specific regulations.

For foreign-funded institutions, the process is more complex and lengthy. The PBoC may take up to six months (extendable to nine) for initial review, followed by a six-month preparation period and a further two-month approval phase. The entire procedure, from application to business licence issuance, often requires 8–12 months or longer. Once approved, business licence registration is usually completed promptly. Applicants are recommended to communicate with the regulators and seek legal and compliance advice in advance.

China regulates foreign investment through a negative list system under the Foreign Investment Law (2019). All foreign investors must establish a local entity and register with the State Administration for Market Regulation. Banks and financial institutions no longer belong to restricted sectors and are not subject to equity caps or mandatory joint ventures with Chinese partners any more, pursuant to the Special Administrative Measures for Foreign Investment Access (Negative List) (2024).

Foreign financial institutions cannot operate across borders in mainland China – such as by offering branch services or digital platforms to domestic Chinese customers – without obtaining proper local licensing or regulatory approval. The Chinese regulatory framework mandates that foreign banks and financial firms must secure specified licences and meet stringent prudential requirements to conduct onshore financial operations.

China requires financial institutions to report large-value transactions to the PBoC. Individuals must report domestic cash transactions of $10,000 or above and overseas remittances of $10,000 or above. Entities face higher thresholds: domestic cash transactions and overseas transfers of $200,000 or above. Reports must be submitted within five business days.

China has established multiple frameworks to facilitate cross-border banking services. The Cross-Border Interbank Payment System, overseen by the PBoC, supports efficient renminbi clearing and settlement for trade, investment, and financial transactions. The Wealth Management Connect scheme allows residents of the Greater Bay Area to invest in wealth management products across Hong Kong, Macau, and mainland China through a closed-loop renminbi channel. Additionally, pilot free trade zones (e.g., the Shanghai FTZ) function as testing grounds for liberalised financial policies, enabling streamlined cross-border lending, currency conversion, and innovative financial products under special regulations.

Foreign financial institutions entering China face a multi-layered regulatory environment. Market access is governed by the Foreign Investment Law and sector-specific regulations, requiring precise activity classification to avoid denial or penalties. A national security review may further screen investments in sensitive sectors such as critical finance infrastructure.

Data governance laws (cybersecurity, data security, etc.) impose localisation and cross-border transfer rules, with severe penalties for non-compliance. Additionally, adherence to China’s anti-money laundering (AML)/countering the financing of terrorism framework is mandatory, including robust know-your-customer (KYC), monitoring, and reporting systems aligned with PBoC requirements.

These layers collectively demand careful legal assessment and operational adaptation to regulatory expectations.

To enhance compliance effectiveness within China’s regulatory environment, financial institutions should prioritise two strategic approaches:

• Establish and maintain a dynamic ‘regulatory register’ that systematically maps all cross-border activities – such as data transfers, financing, foreign investment, and HR operations – to their corresponding legal obligations under relevant Chinese laws (e.g., the Cybersecurity Law, the Data Security Law, the Foreign Investment Law, and AML rules). This living document improves oversight, traceability, and adaptability to regulatory changes. Continuous monitoring of regulatory updates is essential to avoid penalties.

• Ensure full adherence to foreign exchange and AML requirements. This includes timely submission of all SAFE filings, proper maintenance of supporting documents, and strict compliance with AML protocols such as customer due diligence, transaction monitoring, and suspicious activity reporting.

China’s secured financing system is built on three core forms of security: mortgages, pledges, and credit guarantees. Mortgages cover immovable assets – such as land-use rights and buildings – as well as high-value movables such as ships and aircraft, and are legally established under the Civil Code. Pledges apply to movable assets transferred through delivery and certain intangible rights, including accounts receivable. Credit guarantees, by contrast, function as contractual commitments between a guarantor and a creditor – typically without requiring the registration of real rights.

China employs specialised public registries to ensure the visibility and enforceability of security interests. Real estate mortgages must be registered constitutively in the unified real estate registration system. Movable property and rights – such as accounts receivable or inventory – are filed in the national unified registration system operated by the PBoC. Equity pledges in non-listed companies are registered and publicised through the National Enterprise Credit Information Publicity System. Registration is mandatory for third-party effectiveness.

China’s fintech sector operates under a comprehensive regulatory framework that balances innovation with risk control. Guided by the PBoC’s Fintech Development Plan (2022–2025), the regime emphasises data governance, regtech, and standardised innovation. Key regulations also govern non-bank payment institutions, covering licensing, fund management, and real-name payment systems, while financial institutions must comply with strict digital transformation guidelines to strengthen data security and model risk management.

China has established several innovation-friendly mechanisms to facilitate fintech experimentation under supervised deployment. Central among these are the PBoC’s fintech innovation supervision pilot programmes, often referred to as regulatory sandboxes. These have been initiated in key cities, starting in Beijing and expanding to Shanghai, Shenzhen, Suzhou, and others. These pilot programmes allow fintech firms to test and refine new products, business models, and technologies in controlled environments, with tailored regulatory oversight and feedback loops. Regulators publish pilot batches and project lists, providing transparency and guidance to participating firms.

Another major innovation platform is the digital renminbi (e-CNY) pilot conducted under the PBoC’s Digital Currency Institute. This initiative operates essentially like a sandbox for central bank digital currency, enabling live trials across retail payment scenarios, wallet applications, and programmable features. It represents a live testing ground for next-generation digital payment infrastructure, and its expansion in terms of geographic scope and use-case variety demonstrates its importance as an innovation enabler.

China’s legal regime mandates rigorous customer due diligence, KYC, and AML compliance for financial institutions, with explicit provisions for digital and remote onboarding. At the statutory level, the newly enacted Anti-Money Laundering Law imposes obligations on all regulated financial institutions –including banks, payment firms, insurers, and securities companies – to conduct customer identification, monitor suspicious transactions, and maintain effective AML programmes. Complementing this, PBoC-published Customer Due Diligence & Record-Keeping Measures set out detailed operational requirements across institutions, covering initial due diligence, ongoing monitoring, beneficial owner verification, and document retention, which are vital for digital onboarding workflows.

China maintains a strict prohibition on cryptocurrencies, banning all related business activities –including trading, exchange services, and token fundraising – as illegal. Since the 2017 ban on initial coin offerings, authorities have further restricted crypto trading and mining, citing financial risks and excessive energy consumption. Cryptocurrency mining is now classified as an obsolete or restricted industry.

China has introduced key ESG regulations impacting the financial sector, including Guidelines for Financial Institutions Environmental Information Disclosure. Another major development is the Green Finance Endorsed Project Catalogue (effective October 2025), which standardises eligibility criteria for green financial instruments and expands the scope of recognised green activities. These measures aim to enhance transparency, incentivise green financing, and align China with global sustainable finance trends.

Chinese banks are expected to integrate climate-related financial risks into their governance, risk management, and disclosure practices. Banks are guided to disclose how their boards and senior management oversee environmental risks, the policies and exclusion criteria applied to lending and investment, and the methodologies used for environmental risk assessments and carbon accounting. This framework also encourages the disclosure of climate stress-testing results or high-level findings, where feasible, to demonstrate preparedness for transition and physical climate risks.

In China, bank–customer disputes are encouraged to be primarily addressed through internal complaint mechanisms or industry mediation before officially lodging claims to a court. Courts also support mediation and arbitration as alternatives to litigation. Regarding bank–regulator disputes, financial institutions dissatisfied with regulatory actions may seek administrative reconsideration within 60 days.

Chinese financial regulators (including the NFRA, PBoC, and CSRC) are empowered to conduct inspections, enforce compliance, and impose administrative penalties – such as fines, licence revocations, and trading bans – to ensure market stability and integrity. All enforcement actions must adhere to legal procedures and uphold principles of proportionality and due process.

A notable recent example is the May 2025 joint release by the Supreme People’s Court and the CSRC of the Guiding Opinions on Supporting High-Quality Capital Market Development with Strict and Impartial Law Enforcement and Judicial Services. The document outlines 23 targeted measures to strengthen investor protection, deter fraudulent issuance and false disclosures, institutionalise representative litigation in securities disputes, and improve prudence in financial institution operations. It also enhances collaboration between courts and regulators through better dispute-resolution mechanisms, data-sharing, and alignment of administrative enforcement with judicial proceedings. This initiative marks a significant step towards reinforcing the legal and regulatory foundations of China’s capital market and supporting broader modernisation goals.

China’s principal insolvency statute, the Enterprise Bankruptcy Law (EBL), governs the bankruptcy and reorganisation of enterprises across mainland China. However, financial institutions are specifically exempt from automatic coverage under this framework. Furthermore, the EBL empowers the State Council to prescribe special measures for a financial institution’s bankruptcy, outside the general regime.

Resolution regimes for systemically important banks are generally the same as for other financial institutions. According to the EBL, if such a financial institution meets the statutory criteria for bankruptcy, only the relevant financial regulatory authority under the State Council has the standing to apply to a people’s court for reorganisation or liquidation, rather than private creditors initiating proceedings. Moreover, if the regulator has already intervened via administrative measures such as a takeover or trusteeship, it may also petition a court to suspend civil actions or enforcement proceedings against the institution during the period of administrative control.

In China, creditors have multiple non-bankruptcy enforcement options for loan defaults. Under the Civil Code, secured creditors may take possession of or sell collateral to satisfy debts with priority over proceeds. The Civil Code also permits debt set-off when mutual obligations exist, unless otherwise agreed. For larger distressed exposures, bank creditor committees – formed under regulatory guidance – facilitate coordinated out-of-court restructuring to preserve value and ensure orderly resolution.

The EBL grants secured creditors priority repayment from the proceeds of their specific collateral. Any unpaid balance becomes an ordinary claim. Although enforcement actions are suspended after bankruptcy acceptance, realisation of collateral occurs under court supervision and creditor resolutions within the collective process. Secured creditors retain priority over the collateral, but any shortfall is treated as unsecured and ranks after statutory priority claims during distribution.

The challenges currently faced by banking and finance institutions in China include:

• Continuously addressing potential risks in key sectors such as real estate and local debt while controlling non-performing asset pressure;

• Adapting to increasingly stringent domestic and international compliance requirements while strengthening risk control and consumer protection; and

• Prudently managing cross-border operations and investment strategies amid global geopolitical turbulence and decoupling risks.

Furthermore, amid advancing digital transformation in the era of digital finance, banking and finance institutions are tasked to tackle technological and security challenges.

China’s financial regulatory development is expected to prioritise stabilising growth while preventing systemic risks, with continued efforts to address real estate sector vulnerabilities and local government debt through managed resolutions.

Supervision will focus on strengthening smaller financial institutions, enhancing consumer protection, and promoting financing in key areas such as technology innovation and green transition. Regulatory technology will be increasingly deployed for real-time monitoring, alongside further market opening measures cautiously balanced with cross-border capital flow management. The overall approach aims to maintain a precise and balanced policy framework supporting long-term financial stability and economic resilience.