Kudrna, Zdenek (2007): Banking reform in China: Driven by international standards and Chinese specifics.
Download (707Kb) | Preview
This paper reviews the progress of banking reforms in China over the last five years. The stated goal of reform is to “transform major banks into internationally competitive joint‐stock commercial banks with appropriate corporate governance structures, adequate capital, stringent internal controls, safe and sound business operations, quality services as well as desirable profitability.” The reform strategy relies on three pillars – extensive publicly financed bailouts, implementation of the international best practices in bank governance and regulation and listing of major banks at the Hong Kong stock exchange. This strategy has been successful in stabilizing the three major banks. However, our review of academic and commercial research indicates that there is no evidence that the stabilization is sustainable. Prudential indicators of the largest banks are comparable to international averages, but this is an outcome of large bail outs and ongoing credit boom rather than fundamental change in banker’s incentives. Reforms of bank governance and regulatory framework need more time to proliferate throughout the banking and regulatory hierarchies. However, time alone would not solve the problem as the reform design retains important departures from international standards. These standards are implemented in a selective manner; those aspects that help to concentrate key powers in the center are implemented rather vigorously, whereas principles that require independence of banks’ boards and regulators are ignored. Thus the largest Chinese banks remain under the firm state control and can be used as development policy tools for the better or the worse.
|Item Type:||MPRA Paper|
|Original Title:||Banking reform in China: Driven by international standards and Chinese specifics|
|Keywords:||China, banks, reform, international standards|
|Subjects:||G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P34 - Financial Economics
|Depositing User:||Zdenek Kudrna|
|Date Deposited:||25. Feb 2008 00:09|
|Last Modified:||13. Feb 2013 16:37|
Barth, James R., Gerard Caprio, Jr., Ross Levine (2006). Rethinking bank regulation : till angels govern. Cambridge University Press. Berglof, E. and Bolton, P. (2002). The Great Divide and Beyond: Financial Architecture in Transition. Journal of Economic Perspectives, Volume 16, Number 1, pp. 77-100. BIS (1998). International convergence of capital measurement and capital standards. Bank for International Settlements, Basel. Downloadable at www.bis.org (Accessed on July 3rd, 2007). BIS (2006). Core Principles for Effective Banking Supervision. Bank for International Settlements, Basel. Downloadable at www.bis.org (Accessed on May 3rd, 2007). BOC (2007). Bank of China: Annual Report. Downloadable at www.boc.com.cn (Accessed on June 20th, 2007). Bokros, L. (2000). A Perspective on Financial Sector Development in Central and Eastern Europe. In Bokros, L., Fleming, A., Votava, C. eds. (2000). Financial transition in Europe and Central Asia: challenges of the new decade. Washington, D.C.: World Bank. Downloadable at www.worldbank.org (accessed on June 3rd, 2004). Brean, Donald J.S. (2007). Bank Reform in China: What It Means for the World. Canada in Asia Publications Series. Asia Pacific foundation. Downloadable at www.asiapacific.ca (Accessed on July 25th, 2007). Brehm, S. and C. Macht (2005). Is a New Broom Sweeping Clean? The Emergence of the China Banking Regulatory Commission. Aussenwirtschaft. June: 169-202. Buckley, C. (2006). "China reform agenda seen under ideological cloud." Reuters. Retrieved March 6, 2006. Caprio, Gerald, Daniela Klingebiel (1996). Bank Insolvencies: Cross-Country Experience, Policy Research Working Paper, No. 1620.Washington, DC: The World Bank. CBRC (2004). China’s Banking Sector Marches A New Step. Downloadable at www.cbrc.gov.cn (accessed June 15th, 2007). CBRC (2007). Annual Report of the China Banking Regulatory Commission for 2006. Downloadable at www.cbrc.gov.cn (accessed July 4th, 2007). CCB (2007). China Construction Bank: Annual Report. Downloadable at www.ccb.com.cn (Accessed on June 20th, 2007). CEQ (2006). "Money." China Economic Quarterly 2006(4): 10 - 11. Chan, H. S. (2004). "Cadre Personnel Management in China: The Nomenklatura System, 1990–1998." The China Quarterly (September). Chan, S., F. Chan, et al. (2007). China Banks: Picking the Best from the Good in 2007. Asian Equity Research. Hong Kong, Bear Sterns Asia. Chu, Charlene, Lydia Lin, Peter Tebbutt and David Marshall (2006a). Chinese Banks – 2006 Ratings Season Review & 2007 Outlook. Fitch rating, China special report. Chu, Charlene, Lydia Lin, Peter Tebbutt and David Marshall (2006b). China: Taking Stock of Banking System NPLs. Fitch rating, China special report. Chow, Gregory (2006). Corruption and China’s Economic Reform in the Early 21st Century. International Journal of Business, Volume 11 Number 3 Summer. Csaba, Laszlo (2007). Market Socialism: The viable impossible? In Laszlo Csaba, The new political economy of emerging Europe. Akademiai Kiado/Kluwer. Second edition. Davies, H. (2006). Financial Reform in China: what next? Presentation in Hong Kong Theatre at LSE. Diamond, Larry (2003). The Rule of Law as Transition to Democracy in China. Journal of Contemporary China (2003), pp. 319–331. EBRD (2007). Transition Report 2006. London, European Bank for Reconstruction and Development. EIU (2006). China: Country Finance, Economist Intelligence Unit. Ernst and Young (2006). Global Nonperforming Loan Report, Ernst & Young, Global Real Estate Center. Farrell, Diana, Susan Lund, Jaeson Rosenfeld, Fabrice Morin, Niyati Gupta, Ezra Greenberg (2006). Putting China’s Capital to Work: The Value of Financial System Reform. McKinsey Global Institute. Fineman, D. (2006). Cross-Border Investment in Asian Banks, Federal Reserve Bank of San Francisco. Friedman, Edward (2003). A Comparative Politics of Democratization in China. Journal of Contemporary China. Volume 12, Number 34 (February 2003), pp. 103-123. Girardin (1997). Banking sector reform and credit control in China, OECD Develeopment Center. Heilmann, S. (2005). "Regulatory Innovation by Leninist Means: Communist Party Supervision in China’s Financial Industry." The China Quarterly: 2-21. Heilmann, S. (2005b). "Policy-making and Political Supervision in Shanghai’s Financial Industry." Journal of Contemporary China 14(45): 643–668. Hope, N. and F. Hu (2006). Reforming China’s Banking System: How Much Can Foreign Strategic Investment Help? China and India: Learning from Each Other - Reforms and Policies for Sustained Growth. J. Aziz, S. Dunaway and E. Prasad. Washington D.C., International Monetary Fund. Huang, R. and G. Orr (2007). "China's state-owned enterprises: Board governance and the Communist Party." The McKinsey Quarterly. ICBC (2007). Industrial and Commercial Bank of China: Annual Report. Downloadable at www.icbc.com.cn (Accessed on June 20th, 2007). IMF (2006). "People’s Republic of China: 2005 Article IV Consultation—Staff Report; Staff Supplement; and Public Information Notice on the Executive Board Discussion." Country Report 06/394. Lai, J. (2007). China banking: A good proxy for China growth. Hong Kong, DBS Vickers Securities. Lardy (2006). Comments and discussion. Brookings papers on economic activity, vol. 2006, number 2, September. Ma, Guonan (2007). Who Pays China's Bank Restructuring Bill? Asian Economic Papers, Winter 2007. Marshall, D., K. Lin, et al. (2005). Chinese Banks: 2004 Review and 2005 Outlook. FitchRatings Special Report: Financial Institutions. New York, Fitch Ratings. Moody's (2007). Moody's rating symbols and definitions. New York, Moody's Investor Service. North, Douglass C. (1990). Institutions, Institutional Change, and Economic Performance. Cambridge University Press. OECD (2005). China: OECD Economic Survey. Paris, OECD. OECD (2005). Governance in China. Paris, OECD. Pistor, Katharina, Yoram Keinan, Jan Kleinheisterkamp, Mark D. West (2003). Evolution of Corporate Law and the Transplant Effect: Lessons from Six Countries. World Bank Research Observer, Volume 18, Number 1, pp. 89-112. Podpiera, R. (2006). "Progress in China’s Banking Sector Reform: Has Bank Behavior Changed?" IMF Working paper (WP/06/71). Qian, Yingyi (2003). How reform worked in China. In Rodrik, D. ed. (2003). In search of prosperity: analytic narratives on economic growth. Princeton, NJ : Princeton University Press, pp.297 – 333. Shih, V. (2004). "Dealing with Non-Performing Loans: Political Constraints and Financial Policies in China." The China Quarterly (3): 923 - 944. Shih, V. (2004b). "Factions Matter: personal networks and the distribution of bank loans in China." Journal of Contemporary China 13(3): 3-19. Tang, Helena, Edda Zoli, Irina Klytchnikova (2000). Banking crises in transition: Fiscal costs and related issues. Policy research working paper 2484. World Bank. Tang, Shuangning (2007). Progress of banking reforms in China. Speech of the Vice Chairman of the China Banking Regulatory Commission at China Financial Market Forum on April 19, 2007. Downloadable at www.cbrc.gov.cn (Accessed July 12th, 2007). Tanner, M. S. (2004). "China Rethinks Unrest." The Washington Quarterly 27(3): 137-156. Wehrfritz, G. (2007). Chinese Bank IPO Stirs Fear of Market Bubble. Newsweek International. Williamson, O. E. (2000). The New Institutional Economics: Taking stock, looking ahead. Journal of Economic Literature, Vol. 38, No. 3. World Bank (1993). The East Asian Miracle. World Bank, Washington DC. Downloadable from www.worldbank.org (accessed on July 9th, 2007). World Bank (2003). Bank loan classification and provisioning practices in selected developed and emerging countries. Finance Forum. Downloadable from www.worldbank.org (accessed on July 29th, 2007). World Bank (2005). Global Bank Insolvency Initiative: Legal, Institutional, and Regulatory Framework to Deal with Insolvent Banks. Washington D.C., World Bank. Wei, Pan (2003), Toward a Consultative Rule of Law Regime in China Authors: Journal of Contemporary China, Volume 12, Number 34 (February 2003), pp. 3 – 43. Wu, F. (2003). "Chinese Economic Statistics—Caveat Emptor!" Post-Communist Economies 15(1): 138.