Comparing China's Financial System

China Journal of Finance, Vol. 1, pp. 1-28, June 2003

48 Pages Posted: 18 Sep 2003

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Jun 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

Abstract

We compare China's financial system to those of the developed countries, in particular, the US system dominated by financial markets, and the German system dominated by the banking sector. We examine financial systems' properties, including risk sharing, information provision, funding new and mature industries, financial crisis, corporate governance, and the relation between the financial and legal systems and economic growth. We find that there are many fundamental differences between China's financial system and the US system, and simply adopting the US system is not optimal. Understanding the German system and reform China's banking system should be as important as developing US-style financial markets. Our findings also suggest that China differs from most countries studied in the law, finance, and growth and comparative financial systems literature: Despite its poor legal and financial systems, it has the largest, and one of the fastest growing economies in the world. We find that there are effective, informal financing channels and governance mechanisms to support the growth of various firms in the economy. Therefore, it may be best for China to develop its existing financial system, and to ensure that the informal financing channels and governance mechanisms continue to work along with the development of the legal and financial systems.

Keywords: financial system, banking system, financial markets, economic growth, informal sector

JEL Classification: G0, P5, O5, K0

Suggested Citation

Allen, Franklin and Qian, Jun and Qian, Meijun, Comparing China's Financial System. China Journal of Finance, Vol. 1, pp. 1-28, June 2003. Available at SSRN: https://ssrn.com/abstract=439820 or http://dx.doi.org/10.2139/ssrn.439820

Franklin Allen

Imperial College London ( email )

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

Jun Qian (Contact Author)

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

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