Banking Deregulation and Macroeconomic Impact in China: A Theoretical Analysis and Implications of Wto Accession to the Mainland and Hong Kong

44 Pages Posted: 27 Aug 2007

See all articles by Zhijun Zhao

Zhijun Zhao

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Yue Ma

City University of Hong Kong (CityU) - Department of Economics & Finance

Y.Y. Kueh

affiliation not provided to SSRN

Shu-ki Tsang

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law - Department of Economics

Matthew S. Yiu

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Date Written: April 2002

Abstract

Since the beginning of 1990s, the credit balance of the banking system in mainland China has experienced a big swing from negative to positive. The balance has continued to expand up to now. It seems that both negative and positive credit balances are so large that the financial resources have been utilized inefficiently by the banking system. On the eve of China's accession to the World Trade Organization (WTO), challenges from banking competition will increase. In this paper a three-sector equilibrium model of monopolistic banking competition is set up and is applied to analyze the impact of the expanding credit balances and banking reform on the Chinese economy. Through theoretical analysis, reasons for the expanding credit balance are provided and some possible solutions are given. China's accession to the WTO will present many challenges to the state-owned banks. Foreign banks will be allowed to compete directly with Chinese local banks. We found that competition will not only promote China's GDP, investment, consumption and deposits as well as bring benefits to consumers, but also provide the banking sector from Hong Kong with new opportunities.

Keywords: banking competition, WTO, China, Hong Kong

JEL Classification: O11, O41, G21

Suggested Citation

Zhao, Zhijun and Ma, Yue and Kueh, Y.Y. and Tsang, Shu-ki and Yiu, Matthew S., Banking Deregulation and Macroeconomic Impact in China: A Theoretical Analysis and Implications of Wto Accession to the Mainland and Hong Kong (April 2002). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 08/2002, Available at SSRN: https://ssrn.com/abstract=1009143 or http://dx.doi.org/10.2139/ssrn.1009143

Zhijun Zhao (Contact Author)

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

3 Garden Road, 8th Floor
Hong Kong
China

Yue Ma

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/yuema24

Y.Y. Kueh

affiliation not provided to SSRN ( email )

No Address Available

Shu-ki Tsang

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law - Department of Economics ( email )

China

Matthew S. Yiu

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

55/F Two IFC
8 Finance Street, Central
Hong Kong, HK
China
+852 2878 1974 (Phone)
+852 2878 7006 (Fax)

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