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Like China, the Chinese banking sector is in a class of its own

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  • Fungáčová, Zuzana
  • Korhonen, Iikka

Abstract

This paper provides an overview of the Chinese banking sector, which has expanded tremendously over the past two decades. We first describe aggregate developments of the sector and compare them to the situation in other countries. Also, various financial institutions that operate in China are analyzed. Our results confirm that the Chinese banking sector is truly in a class of its own, especially given the level of China's economic development. Despite significant reforms, the state and various public organizations still own controlling shares in the largest commercial banks. The state is also present on the borrowers' side; it is estimated that about half of state-owned commercial bank lending still goes to state-controlled companies. In this way, the banking system can serve as an important policy tool. Another distinctive feature of the Chinese banking sector is the variety of its banking institutions. New types of banking institutions, especially those serving rural areas, are emerging all the time. While equity and debt markets are still tiny relative to the banking sector and their importance as sources of financing of investment remain minor, they have evolved rapidly in recent years. JEL: G28, P34, G21 Keywords: China, banking sector, state banks

Suggested Citation

  • Fungáčová, Zuzana & Korhonen, Iikka, 2011. "Like China, the Chinese banking sector is in a class of its own," BOFIT Discussion Papers 32/2011, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2011_032
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    References listed on IDEAS

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    1. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 113-130, January.
    2. Pessarossi, Pierre & Weill, Laurent, 2013. "Choice of corporate debt in China: The role of state ownership," China Economic Review, Elsevier, vol. 26(C), pages 1-16.
    3. Kumiko Okazaki & Masazumi Hattori & Wataru Takahashi, 2011. "The Challenges Confronting the Banking System Reform in China: An Analysis in Light of Japan's Experience of Financial Liberalization," IMES Discussion Paper Series 11-E-06, Institute for Monetary and Economic Studies, Bank of Japan.
    4. Guonan Ma & Wang Yi, 2010. "China’s High Saving Rate: Myth and Reality," International Economics, CEPII research center, issue 122, pages 5-39.
    5. Vernikov, Andrei, 2009. "Russian banking : The state makes a comeback?," BOFIT Discussion Papers 24/2009, Bank of Finland, Institute for Economies in Transition.
    6. Richard Herd & Samuel Hill & Charles Pigott, 2010. "China's Financial Sector Reforms," OECD Economics Department Working Papers 747, OECD Publishing.
    7. repec:cii:cepiei:2010-april-122-4 is not listed on IDEAS
    8. repec:cii:cepiie:2010-april-122-4 is not listed on IDEAS
    9. William T. Allen & Han Shen, 2011. "Assessing China's Top-Down Securities Markets," NBER Working Papers 16713, National Bureau of Economic Research, Inc.
    10. Beck , Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2009. "Financial institutions and markets across countries and over time - data and analysis," Policy Research Working Paper Series 4943, The World Bank.
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    12. Bin Liu, 2011. "The Effects of Public Listing on the Performance of Banks in China," Working Papers 072011, Hong Kong Institute for Monetary Research.
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    Cited by:

    1. Glick, Reuven & Hutchison, Michael, 2013. "China's financial linkages with Asia and the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 186-206.
    2. Lee, Jongchul, 2013. "Income Inequality In Urban China And The Role Of State Sector," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 54(2), pages 159-176, December.
    3. Chen, Ting-Hsuan & Chou, Hsiu-Hsia & Chang, Yuan & Fang, Hao, 2015. "The effect of excess lending on bank liquidity : Evidence from China," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 54-68.

    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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