markets and transfer flows from branches of the bank The first main structural change began in 1978 and ended in 1984. By the end of 1979, the PBOC departed the ministry and became a separate entity, while three state-owned banks took over some of its commercial banking businesses: The Bank of China(BOC)was given the mandate to specialize in transactions related to foreign trade and investment; the Peoples Construction Bank of China(PCBC), originally formed in 1954, was set up to handle transactions related to fixed investment (in manufacturing); the Agriculture Bank of China(ABC)was set up(in 1979)to deal with all banking business in rural areas; and the pboc was formally established as China s central bank and a two-tier banking system was formed. Finally, the fourth state-owned commercial bank, the Industrial and Commercial Bank of China(ICBc)was formed in 1984, and took over the rest of the commercial transactions of the pboc For most of the 1980s, the development of the financial system can be characterized by the fast growth of financial intermediaries outside of the" Big Four"state-owned banks mentioned above. For example, regional banks(partially owned by local governments) were formed in the Special economic Zones in the coastal areas; in rural sectors a network of rural Credit Cooperatives(RCCs; similar to credit unions in the U.S. )was setup under the supervision of the ABC, while Urban Credit Cooperatives(UCCs), counterparts of the RCCs in the urban areas, were also set up. Non-bank financial intermediaries, such as the Trust and Investment Corporations (TICs; operating in selected banking services and non-banking services with restrictions on both the sources of deposits and loans made), emerged and proliferated in this period. All of the new financial intermediaries began to take deposits and make loans, which increased the competition but also contributed to higher levels of inflation. As a result, savings deposits surged after the structural change, while the main investment channel for firms(from the government to SOEs) shifted from budget appropriation(70% in 1978)to loans from state-owned banks(80% in 1982). However, the four state-owned banks had almost no discretion in making loan -related decisions as these were based on quotas allocated by the PBOC. While foreign banks were allowed to set up representative offices beginning in 1979(Bank of Tokyo set up the first such office in Beijing), it was not until the later period of 1982 to 1985 that a small number of foreign banks was permitted to set up branch offices(for currency exchange operations) in Chinas Special Economy Zones. In 1985, the government legalized the status of foreign banks' branches and their operations in the Zones. The BOC, the oldest bank that is currently operating, was originally established by Sun, Zhongshan in 1912 as a private bank, and specialized in foreign currency related transactions7 markets and transfer flows from branches of the bank. The first main structural change began in 1978 and ended in 1984. By the end of 1979, the PBOC departed the Ministry and became a separate entity, while three state-owned banks took over some of its commercial banking businesses: The Bank of China3 (BOC) was given the mandate to specialize in transactions related to foreign trade and investment; the People’s Construction Bank of China (PCBC), originally formed in 1954, was set up to handle transactions related to fixed investment (in manufacturing); the Agriculture Bank of China (ABC) was set up (in 1979) to deal with all banking business in rural areas; and, the PBOC was formally established as China’s central bank and a two-tier banking system was formed. Finally, the fourth state-owned commercial bank, the Industrial and Commercial Bank of China (ICBC) was formed in 1984, and took over the rest of the commercial transactions of the PBOC. For most of the 1980s, the development of the financial system can be characterized by the fast growth of financial intermediaries outside of the “Big Four” state-owned banks mentioned above. For example, regional banks (partially owned by local governments) were formed in the Special Economic Zones in the coastal areas; in rural sectors, a network of Rural Credit Cooperatives (RCCs; similar to credit unions in the U.S.) was setup under the supervision of the ABC, while Urban Credit Cooperatives (UCCs), counterparts of the RCCs in the urban areas, were also set up. Non-bank financial intermediaries, such as the Trust and Investment Corporations (TICs; operating in selected banking services and non-banking services with restrictions on both the sources of deposits and loans made), emerged and proliferated in this period. All of the new financial intermediaries began to take deposits and make loans, which increased the competition but also contributed to higher levels of inflation. As a result, savings deposits surged after the structural change, while the main investment channel for firms (from the government to SOEs) shifted from budget appropriation (70% in 1978) to loans from state-owned banks (80% in 1982). However, the four state-owned banks had almost no discretion in making loan-related decisions as these were based on quotas allocated by the PBOC. While foreign banks were allowed to set up representative offices beginning in 1979 (Bank of Tokyo set up the first such office in Beijing), it was not until the later period of 1982 to 1985 that a small number of foreign banks was permitted to set up branch offices (for currency exchange operations) in China’s Special Economy Zones. In 1985, the government legalized the status of foreign banks’ branches and their operations in the Zones. The 3 BOC, the oldest bank that is currently operating, was originally established by Sun, Zhongshan in 1912 as a private bank, and specialized in foreign currency related transactions