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Pitfalls of a State-Dominated Financial System: The Case of China

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Author Info
Boyreau-Debray, Genevieve
Wei, Shang-Jin

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Abstract

This Paper examines pitfalls of a state-dominated financial system in the context of China. These include possible segmentation of the internal capital market due to local government interference and misallocation of capital. First, we employ two standard tools from the international finance literature to analyse financial integration across Chinese provinces. Both tests confirm a similar (and somewhat surprising) picture: capital mobility within China is low! Furthermore, the degree of internal financial integration appears to have decreased, rather than increased, in the 1990s relative to the preceding period. Second, we document that the government tends to reallocate capital from more productive regions towards less productive ones. In this sense, a smaller role of the government in the financial sector might increase economic efficiency and the rate of economic growth.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4471.

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Date of creation: Jul 2004
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Handle: RePEc:cpr:ceprdp:4471

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Related research
Keywords: chinese economy; feldstein-horioka; financial integration; internal capital market; risk sharing;

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arvind Virmani, 2009. "China’s Socialist Market Economy: Lessons for Democratic Developing Countries," Working Papers id:1899, esocialsciences.com. [Downloadable!]
  2. David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China," NBER Working Papers 13103, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Beoy Kui Ng, 2007. "Banking Reform in China: An Assessment in Macroeconomic Perspective," Economic Growth centre Working Paper Series 0707, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre. [Downloadable!]
  4. Arvind Virmani, 2005. "China's Socialist Market Economy: Lessons of Success," Indian Council for Research on International Economic Relations, New Delhi Working Papers 178, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  5. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2008. "Formal versus informal finance : evidence from China," Policy Research Working Paper Series 4465, The World Bank. [Downloadable!]
  6. Frederic Mishkin, 2005. "Is Financial Globalization Beneficial?," NBER Working Papers 11891, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Panicaos Demetriades & Jun Du & Sourafel Girma & Chenggang Xu, 2008. "Does the Chinese Banking System Promote the Growth of Firms?," WEF Working Papers 0036, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
    Other versions:
  8. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," NBER Working Papers 12755, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Lane, Philip R. & Schmukler, Sergio L., 2007. "The international financial integration of China and India," Policy Research Working Paper Series 4132, The World Bank. [Downloadable!]
    Other versions:
  10. Sandra Poncet & Walter Steingress & Hylke Vandenbussche, 2008. "Financial constraints in China: firm-level evidence," LICOS Discussion Papers 22608, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
    Other versions:
  11. Richard Podpiera, 2006. "Progress in China's Banking Sector Reform: Has Bank Behavior Changed?," IMF Working Papers 06/71, International Monetary Fund. [Downloadable!]
  12. Du, Jun & Girma, Sourafel, 2009. "Source of Finance, Growth and Firm Size ? Evidence from China," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  13. Song, Zheng Michael & Storesletten, Kjetil & Zilibotti, Fabrizio, 2009. "Growing like China," CEPR Discussion Papers 7149, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Sau Lino, 2009. "Gradualism and the evolution of the financial structure in China," Department of Economics Working Papers 200903, University of Turin. [Downloadable!]
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