An Assessment of China’s Banking System Reform

Abstract

China’s banking system can be seen as an enigma. It was once ­considered China’s Achilles’ heel but has now become an important part of the country’s success story. This article reviews and assesses China’s banking reforms implemented since 1998. Three key aspects of the reform are reviewed: bank restructuring, financial liberalization and bank regulation. Although improvements have been seen in asset quality and regulation, lasting government intervention and weak corporate governance by way of inadequate incentives could lead to financial stability problems. The involvement of Chinese authorities in increasing bank lending during the global financial crisis reveals that the reform process is far from complete.