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Where Is The Chinese Banking System Going With The Ongoing Reform?

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Author Info

  • ALICIA GARCIA HERRERO

    (BANCO DE ESPAÑA)

  • DANIEL SANTABARBARA GARCIA

    (BANCO DE ESPAÑA)

Abstract

The Chinese banking system, characterized by a large proportion of state-ownership and low capitalization, has started a reform process based on three main pillars: (i) bank restructuring, with the cleaning- up of non-performing loans and public capital injections, particularly in the four largest state-owned banks; (ii) financial liberalization, with the gradual flexibilizaton of price and quantity controls and the opening-up to foreign competition; and (iii) strengthened financial regulation and supervision, as well as better risk management, corporate governance, disclosure, and the introduction of international standards. Although it is still early to judge on the success of the reform, the available evidence does not offer a very optimistic outlook. The solvency of Chinese banks is still very weak, with a stubbornly high level of non-performing loans, and profitability is poor. Given the commitment of the Chinese authorities to fully open up its banking system to foreign competition by 2006, it seems crucial that financial reform accelerates so that the Chinese banking system can compete at the international level. This is particularly the case for the reduction of NPLs and bank recapitalization as well as for a furthered improvement of bank regulation and supervision.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0408001.

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Length: 42 pages
Date of creation: 05 Aug 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0408001

Note: Type of Document - pdf; pages: 42
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Web page: http://128.118.178.162

Related research

Keywords: Chinese financial system; financial reform; bank restructuring; financial liberalization; bank regulation and supervision;

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References

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  1. 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.
  2. Enrica Detragiache & Asli Demirgüç-Kunt, 1998. "Financial Liberalization and Financial Fragility," IMF Working Papers 98/83, International Monetary Fund.
  3. repec:cto:journl:v:21:y:2001:i:1:p:13-18 is not listed on IDEAS
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Citations

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Cited by:
  1. Gunji, Hiroshi & Yuan, Yuan, 2010. "Bank profitability and the bank lending channel: Evidence from China," Journal of Asian Economics, Elsevier, vol. 21(2), pages 129-141, April.
  2. Alicia García-Herrero & Sergio Gavilá & Daniel Santabárbara, 2006. "China's Banking Reform: An Assessment of its Evolution and Possible Impact," CESifo Economic Studies, CESifo, vol. 52(2), pages 304-363, June.
  3. Zhuang Cai & Peter Wheale, 2009. "Managing Efficient Capital Allocation with Emphasis on the Chinese Experience," Journal of Business Ethics, Springer, vol. 87(1), pages 111-135, April.

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