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The world’s second-largest economy is performing a difficult balancing act, attempting to recalibrate its financial sector while seriously welcoming foreign entrants for the first time in history. finews.asia takes a look at the top 5 challenges in 2021.

Industries all over the world are undergoing major structural changes due to a combination of dynamic factors and the financial sector has been no exception.

Technological advancement has uprooted some of the fundamental facets of finance such as mobile access to banking or digitalized money. The health crisis triggered new practices that may be here to stay such as remote working conditions or greater focus on sustainability. Geopolitical tensions are rejigging the sources and destinations for global capital.

Few face more disruption and change than China’s financial sector. finews.asia reviews some of the top challenges it faces next year.

1. Bank on Yourself

Few have had a harder time in Chinese finance than local banks in 2020. In addition to the initial outbreak, mainland lenders took a hit from the negative oil price shock in April which led to shrunken commodity businesses and investor compensation. In June, top officials called for the «sacrifice» of profits to support the economy. And all of this occurring in a backdrop of multiple bank runs, unwinding from three headline state bailouts in 2019 while freshly funded foreign giants enter the market. 

2021 will truly put the resilience of balance sheets to the test as the central bank pushes for a key theme: self-reliance.

Assets and liabilities are both facing downward pressure. Lending will take a hit as regulators call for better risk controls and insist on new compromised deadline to halt shadow banking – a key off-balance-sheet lending source – by 2021-end. Concurrently, deposit-taking also faces headwinds in part from restricting fintech participation in the financial system (see page 2) by tightening against products to attract capital and capping bank partnerships. A recent Bank of China report projects 2-3 percent profit growth for the mainland's banking sector next year.