In China, Islamic finance refers to the rare Sharia-compliant transactions carried out on the mainland, such as the Ningxia trial, and above all to sukuk issues and products offered from Hong Kong, since no national law recognises these contracts.
Mainland regulation without an Islamic chapter
Chinese banking law provides no status for an Islamic bank and no tax treatment adapted to the successive sales used in murabaha or ijara. Any offer must therefore squeeze into the general rules, which holds back local projects.
Who has supervised the banks since 2023?
The National Financial Regulatory Administration was created on 10 March 2023 and replaced the banking and insurance regulatory commission. It oversees banks and insurers, while the securities market remains the responsibility of the separate securities regulatory commission.
The Bank of Ningxia experiment in 2009
The government of the Ningxia Hui Autonomous Region proposed a trial of Islamic financial services at the end of 2008. The banking regulator of the time gave preliminary approval in 2009 for a specialised branch serving local Muslim customers.
Three obstacles flagged from the outset
Officials pointed out that these services went beyond the scope of the commercial banking law, that they required special tax provisions, and that there was a shortage of staff trained in both Islamic law and finance.
Why the trial stayed local
The project was meant to be expanded gradually, but the legislative changes under discussion saw little follow-up. Without legal status or tax neutrality, a bank cannot replicate at scale contracts that depend on owning the underlying asset.
Hong Kong, the testing ground for Chinese Islamic finance
As a special administrative region with its own law and monetary authority, Hong Kong adapted its tax rules to alternative bonds. This lets a sukuk be treated like a conventional bond for stamp duty and tax purposes.
Hong Kong's sovereign sukuk in 2014
In 2014 the Hong Kong government placed a one billion US dollar sukuk, listed in Hong Kong, Malaysia and Dubai. The deal was widely presented as the first dollar-denominated issue by a government with a triple A credit rating.
A second issue in 2015
The Hong Kong Monetary Authority sold another five-year sukuk of one billion dollars in 2015. Both of these deals were less about a funding need than about demonstrating the financial centre's real legal and technical capability.
China inside the IFSB
The People's Bank of China and the Hong Kong Monetary Authority are among the associate members of the IFSB, the body that drafts prudential standards for Islamic finance. Their presence reflects technical monitoring more than a plan to regulate.
The Belt and Road and the pull of Gulf capital
Launched in 2013, the Belt and Road initiative crosses many Muslim-majority countries. Infrastructure funded through sukuk or ijara could attract Gulf savings there, and the Asian infrastructure investment bank has discussed cooperation with the Islamic Development Bank.
What access does a Muslim saver in China have?
On the mainland, interest-free accounts and Islamic home finance remain very scarce. A careful customer checks whether the product carries a written Sharia opinion, which contract generates the return and who really bears the risk on the asset.
What to watch in the years ahead
Real growth would require recognition of successive sale and lease contracts, neutral tax treatment and a reference Sharia body. As long as these pieces are missing, Hong Kong will remain the preferred gateway for this capital.
Specialist external source
The National Financial Regulatory Administration website publishes the rules for Chinese banks and insurers, the framework any Islamic product on the mainland would have to fit into.