Financial Reform and Economic Development in China
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Financial Reform and Economic Development in China

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.
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Chapter 5: Non-bank Financial Institutions and Economic Development in China

James Laurenceson and Joseph C.H. Chai


5. Non-bank financial institutions and economic development in China INTRODUCTION In considering the nature of financial reform in China, and in assessing its impact on economic development, the stylized fact of SOBs lending predominantly to SOEs has attracted the overwhelming majority of research attention. It is, therefore, often assumed that the formal financial sector has played an insignificant role in facilitating the development of China’s rapidly emerging non-state sector. However, as noted by Girardin and Bazen (1998, p. 141), this view could be misleading because it fails to consider the role potentially played by NBFIs. During the reform period, three types of NBFIs have risen to prominence; RCCs, UCCs and TICs.1 Table 5.1 shows their share of China’s total loans and deposits markets. The rising prominence of NBFIs in the loans market is particularly striking. In 1978 they provided just 2.4 percent of the total loans extended by financial institutions in China. By 1996, this had risen to 18.2 percent. In large part due to the increased prominence of NBFIs, the PBC’s credit registration system showed that at year-end 2000, the loan balance holdings of the nonstate sector was 48 percent of the total (PBC, 2001, p. 39). These data are in contrast to the popular view that China’s financial system simply channels the savings of the household sector to the state enterprise sector. Thus, the scope for NBFIs to impact upon economic development has been considerable. In light of the rapid growth that NBFIs have experienced, the objectives...

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