Financial Reform and Economic Development in China

Financial Reform and Economic Development in China

Advances in Chinese Economic Studies series

James Laurenceson and Joseph C.H. Chai

This book is a comprehensive, balanced and realistic assessment of China’s financial reform program and future direction. Covering not only the banking sector but also non-bank financial institutions, stock market development and external financial liberalization, the authors examine the impact of financial reform on economic development in China during the reform period. This volume will facilitate a more accurate assessment of the Chinese approach to financial reform, and will therefore, allow more informed future policy choices for both China and other developing and transitional countries.

Chapter 8: Conclusion

James Laurenceson and Joseph C.H. Chai

Subjects: asian studies, asian development, asian economics, development studies, asian development, economics and finance, asian economics, economic psychology


MAJOR FINDINGS The major findings of this research can be summarized according to two central themes. First, when viewed in a historical perspective, the Chinese financial sector has experienced substantial reform since the transition to a market economy began in 1978. Particularly prominent in this liberalization has been vast institutional diversification. Prior to 1978, China’s financial system consisted almost exclusively of a state-owned, mono-banking system. Early in the reform period this system was replaced with a two-tiered banking structure, with the PBC installed as the central bank and other SOBs performing a mix of development and commercial banking functions. Banks of various other ownership classifications have also joined the SOBs. In addition to banking system institutional diversification, numerous NBFIs have emerged including UCCs, TICs, the postal savings network, finance companies, insurance companies, leasing companies and securities companies. Direct capital markets for both equity and debt are also now part of the modern Chinese financial system. Another prominent aspect of financial sector reform has been that government controls over financial institutions have been relaxed. Prior to the transition to a market economy, financial institutions were directly controlled by the central government, interest rates were fixed at low levels, and the volume and direction of credit was decreed in a detailed manner by the credit plan. However, during the reform period, a floating interest rate system has been introduced, which has given financial institutions varying degrees of autonomy to set their own interest rates within a specified band...

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