China's Financial System: Past, Present, and Future

63 Pages Posted: 5 Aug 2005  

Franklin Allen

Imperial College London

Jun Qian

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)

Meijun Qian

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

Date Written: March 28, 2007

Abstract

We examine the role of China's financial system in supporting economic growth, and explore directions of future development. First, the current financial system is dominated by a large but inefficient banking sector. Reducing the amount of non-performing loans among the major banks to normal levels is the most critical task for reforming the financial system in the short run. Second, the role of the stock market in allocating resources in the economy has been limited and ineffective. Further development of China's 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 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.

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

JEL Classification: O5, K0, G2

Suggested Citation

Allen, Franklin and Qian, Jun and Qian, Meijun, China's Financial System: Past, Present, and Future (March 28, 2007). Available at SSRN: https://ssrn.com/abstract=978485 or http://dx.doi.org/10.2139/ssrn.978485

Franklin Allen

Imperial College London ( email )

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

Jun Qian (Contact Author)

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University ( email )

211 West Huaihai Road
Shanghai, 200030
China
86-21-62934520 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.saif.sjtu.edu.cn/en/professors/2101

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/

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Meijun Qian

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

Canberra
Australia

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