China’s Financial System: Opportunities and Challenges
University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)
Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)
University of Pennsylvania - The Wharton School
University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis; University of Alberta
October 15, 2011
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. It is important that these efforts are continued. Second, the role of the stock market in allocating resources in the economy has been limited and ineffective. Further development of China’s stock market and other financial markets is the most important task. 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. This sector should co-exist with banks and markets in the future in order to continue to support the growth of the Hybrid Sector (non-state, non-listed firms). Finally, in order to sustain stable economic growth, China should aim to prevent and halt 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.
Number of Pages in PDF File: 83
Keywords: banks, non-performing loans, markets, hybrid sector, financial crisis
JEL Classification: O5, K0, G2
Date posted: October 17, 2011
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