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China's Financial System: Opportunities and Challenges

Author

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  • Franklin Allen
  • Jun QJ Qian
  • Chenying Zhang
  • Mengxin Zhao

Abstract

We provide a comprehensive review of China's financial system, and explore directions of future development. First, the financial system has been dominated by a large banking sector. In recent years banks have made considerable progress in reducing the amount of non-performing loans and improving their efficiency. Second, the role of the stock market in allocating resources in the economy has been limited and ineffective. We discuss issues related to the further development of China's stock market and other financial markets. Third, the most successful part of the financial system, in terms of supporting the growth of the overall economy, is a non-standard sector that consists of alternative financing channels, governance mechanisms, and institutions. The co-existence of this sector with banks and markets can continue to support the growth of the Hybrid Sector (non-state, non-listed firms). Finally, among the policies that will help to sustain stable economic growth in China are those that reduce the likelihood of damaging financial crises, including a banking sector crisis, a real estate or stock market crash, and a "twin crisis" in the currency market and banking sector.

Suggested Citation

  • Franklin Allen & Jun QJ Qian & Chenying Zhang & Mengxin Zhao, 2012. "China's Financial System: Opportunities and Challenges," NBER Working Papers 17828, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17828
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    Cited by:

    1. Boubakri, Salem & Guillaumin, Cyriac, 2015. "Regional integration of the East Asian stock markets: An empirical assessment," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 136-160.
    2. Ogunlowo, Olufemi O. & Bristow, Abigail L. & Sohail, M., 2017. "A stakeholder analysis of the automotive industry's use of compressed natural gas in Nigeria," Transport Policy, Elsevier, vol. 53(C), pages 58-69.
    3. Humphery-Jenner, Mark & Suchard, Jo-Ann, 2013. "Foreign VCs and venture success: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 16-35.
    4. Christian Dreger & Tongsan Wang & Yanqun Zhang, 2015. "Understanding Chinese Consumption: The Impact of Hukou," Development and Change, International Institute of Social Studies, vol. 46(6), pages 1331-1344, November.
    5. repec:bla:buecrs:v:68:y:2016:i:s1:p:146-170 is not listed on IDEAS
    6. Xiaosheng Ju & Dic Lo, 2012. "The cost and benefit of banking regulations and controls, Chinese style," PSL Quarterly Review, Economia civile, vol. 65(263), pages 385-402.
    7. Yang, Jun & Shao, Hanhua, 2016. "Impact of bank competition on the bank lending channel of monetary transmission: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 468-481.
    8. Fungáčová, Zuzana & Pessarossi, Pierre & Weill, Laurent, 2013. "Is bank competition detrimental to efficiency? Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 121-134.
    9. Bonatti, Luigi & Fracasso, Andrea, 2014. "Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth," MPRA Paper 54129, University Library of Munich, Germany.
    10. Guo, Di & Guo, Yan & Jiang, Kun, 2016. "Government-subsidized R&D and firm innovation: Evidence from China," Research Policy, Elsevier, vol. 45(6), pages 1129-1144.
    11. Nina Shapiro, 2012. "Josef Steindl: An Economist of His Times," Moneta e Credito, Economia civile, vol. 65(260), pages 293-315.
    12. Li, Tingting & Lai, Jennifer T. & Wang, Yong & Zhao, Dingtao, 2016. "Long-run relationship between inequality and growth in post-reform China: New evidence from dynamic panel model," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 238-252.
    13. repec:oup:revfin:v:21:y:2017:i:4:p:1593-1638. is not listed on IDEAS
    14. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.
    15. Hou, Xiaohui & Wang, Qing, 2016. "Institutional quality, banking marketization, and bank stability: Evidence from China," Economic Systems, Elsevier, vol. 40(4), pages 539-551.
    16. Julian GRUIN, 2013. "Asset or Liability? The Role of the Financial System in the Political Economy of China’s Rebalancing," Journal of Current Chinese Affairs - China aktuell, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 42(4), pages 73-104.
    17. Chen, Donghua & Jiang, Dequan & Yu, Xin, 2015. "Corporate philanthropy and bank loans in China," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 402-424.
    18. repec:eee:respol:v:46:y:2017:i:5:p:1020-1038 is not listed on IDEAS
    19. Lynne Cockerell & Michael Shoory, 2012. "Internationalising the Renminbi," RBA Bulletin, Reserve Bank of Australia, pages 77-90, June.
    20. Di Guo & Kun Jiang & Xiaoting Mai, 2015. "Venture Capital Investment and the Post-IPO Performance of Entrepreneurial Firms: Evidence from the People's Republic of China," Asian Development Review, MIT Press, vol. 32(1), pages 113-141, March.
    21. Marie Luise Funke & Helena Xiang Li & Horst Löchel, 2016. "The High Profitability of Big Chinese State-Owned Banks and China’s Growth Model," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 121-134, August.

    More about this item

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • K0 - Law and Economics - - General
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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