Review of China's Financial System and Initiatives for the Future

Wharton Financial Institutions Center Working Paper No. 08-28

70 Pages Posted: 31 Jul 2008

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Jun "QJ" Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Meijun Qian

Australian National University (ANU) - College of Business and Economics

Mengxin Zhao

Securities and Exchange Commission (SEC); Independent

Date Written: July 28, 2008

Abstract

We provide a comprehensive review of China's financial system, and explore directions of future development. First, the current financial system is 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 in the long-term. 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 coexist 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.

Keywords: banks, non-performing loans, markets, corporate governance, hybrid sector, financial crisis

JEL Classification: O53, K00, G15, G21, G28

Suggested Citation

Allen, Franklin and Qian, Jun and Qian, Meijun and Zhao, Mengxin, Review of China's Financial System and Initiatives for the Future (July 28, 2008). Wharton Financial Institutions Center Working Paper No. 08-28, Available at SSRN: https://ssrn.com/abstract=1185877 or http://dx.doi.org/10.2139/ssrn.1185877

Franklin Allen (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Jun Qian

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Meijun Qian

Australian National University (ANU) - College of Business and Economics ( email )

Canberra
Australia

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Independent

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