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Banking Reform in China: An Assessment in Macroeconomic Perspective

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  • Beoy Kui Ng

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

Abstract

China has been delaying its adoption of a flexible exchange rate system with free capital flows. The main excuse is that its financial sector is still in its fragile stage and is not able to withstand any external shocks. A big bang approach towards such liberalization will only lead to financial crisis as observed by experiences of many Asia-Pacific countries during the Asian Financial Crisis. With this in mind, this paper attempts to uncover the approach and strategies adopted by China in its banking reform since 1978 and then assess these reform measures in macroeconomic perspective. The paper argues that since China is still lingering on export-oriented strategy in promoting economic growth and monetary independence for demand management is still a long way to go, it is still in China’s best interest not to adopt a flexible exchange rate system at this point of time. As to capital account liberalization, the main focus is to engineer a controlled and systematic capital outflows through outward investment in particular portfolio investment. At the micro level, China should continue its banking reforms until the financial sector is strong enough to withstand the severe pressure of globalization. By then, will China, with its matured financial system be ready to consider the adoption of a flexible exchange system with free capital flows.

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Bibliographic Info

Paper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number 0707.

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Length: 36 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:nan:wpaper:0707

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Related research

Keywords: China; banking reform; non-performing loans; state-owned enterprises; corporate governance; regulation and supervision; financial liberalization;

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  1. Alicia Garcia-Herrero & Sergio Gavila & Daniel Santabarbara, 2005. "China’s banking reform: An assessment of its evolution and possible impact," Finance 0508010, EconWPA.
  2. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  3. Barbara Casu & Claudia Girardone, 2009. "Integration and Efficiency in EU Banking Markets," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  4. repec:cto:journl:v:21:y:2001:i:1:p:13-18 is not listed on IDEAS
  5. Liu Junning, 2001. "The New Trinity: The Political Consequences of WTO, PNTR, and the Internet in China," Cato Journal, Cato Journal, Cato Institute, vol. 21(1), Spring/Su.
  6. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
  7. Boyreau-Debray, Genevieve & Wei, Shang-Jin, 2004. "Pitfalls of a State-Dominated Financial System: The Case of China," CEPR Discussion Papers 4471, C.E.P.R. Discussion Papers.
  8. Richard Podpiera, 2006. "Progress in China'S Banking Sector Reform," IMF Working Papers 06/71, International Monetary Fund.
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