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SUPPLY OF FINANCIAL SERVICES IN CHINA:

A STUDY OF DOMESTIC MONEY TRANSFERS

Jennifer Isern

Nova Southeastern University, USA.

 

Enjiang Cheng

Victoria University, Australia.

 

Xu Zhong

People’s Bank of China, China.

 

ABSTRACT

This study addresses the supply of financial services, especially money transfers, in the People’s Republic of China. With an estimated 95 million domestic labor migrants, the potential market for remittances is estimated between USD 23 billion and 40 billion in 2005 and growing. Labor migration in China has been characterized by a large outflow of agricultural laborers from rural inland areas moving to coastal provinces to work in manufacturing and service sectors, mostly on a temporary basis. Migrant workers tend to remit funds to their families, and a growing number also receive wages on prepaid or debit cards. The money transfers market is dominated by China Post, and other financial service providers currently have modest market share. Branch placement and retail strategy of financial service providers plus their responses to structural constraints such as the payments system are the current drivers of competitive advantage in China’s money transfers market. This is a growing market segment that could be promising for financial institutions, as domestic remittances were estimated between USD 23 billion to 40 billion in 2005. Beyond the money transfers market, migrant workers and their families may also seek other financial services such as deposits, consumer loans, and home-improvement loans.

Key words: China, financial institutions, consumer demand, financial services, money transfers, remittances, migration.

JEL Codes: G14, G21