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Banking Deregulation and Macroeconomic Impact in China: A Theoretical Analysis and Implications of WTO Accession to the Mainland and Hong Kong

Author

Listed:
  • Zhijun Zhao

    (Chinese Academy of Social Sciences and Hong Kong Institute for Monetary Research)

  • Yue Ma

    (Lingnan University, Hong Kong)

  • Yak-yeow Kueh

    (Lingnan University, Hong Kong)

  • Shu-ki Tsang

    (Hong Kong Baptist University)

Abstract

Since the beginning of 1990s, the credit balance of the banking system in mainland China has experienced a big swing from negative to positive. The balance has continued to expand up to now. It seems that both negative and positive credit balances are so large that the financial resources have been utilized inefficiently by the banking system. On the eve of China¡¦s accession to the World Trade Organization (WTO), challenges from banking competition will increase. In this paper a three-sector equilibrium model of monopolistic banking competition is set up and is applied to analyze the impact of the expanding credit balances and banking reform on the Chinese economy. Through theoretical analysis, reasons for the expanding credit balance are provided and some possible solutions are given. China's accession to the WTO will present many challenges to the state-owned banks. Foreign banks will be allowed to compete directly with Chinese local banks. We found that competition will not only promote China's GDP, investment, consumption and deposits as well as bring benefits to consumers, but also provide the banking sector from Hong Kong with new opportunities.

Suggested Citation

  • Zhijun Zhao & Yue Ma & Yak-yeow Kueh & Shu-ki Tsang, 2002. "Banking Deregulation and Macroeconomic Impact in China: A Theoretical Analysis and Implications of WTO Accession to the Mainland and Hong Kong," Working Papers 082002, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:082002
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    References listed on IDEAS

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    Cited by:

    1. Huayu Sun & Yue Ma, 2004. "Money and price relationship in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 2(3), pages 225-247.

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    More about this item

    Keywords

    banking competition; WTO; China; Hong Kong;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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