Reform of Financial System in China

1
Reform of Financial System in China

• Lecturer Zhigang Li

2
Overview of the Financial Reform

• China has fundamentally restructured its banking
  system and experimented with numerous financial
  innovations.
• The innovations have often failed and new
  institutions have not yet been allowed to play
  much role in the market economy.
• The financial system is currently the focus of
  attention from policy-makers, and it is in the
  midst of a period of rapid change.

3
Chinas Financial System under the Planned Economy

• Government-run banking system dominated
• The system was to facilitate the exchange of
  goods and provide short-term lending.
• Long-term lending for investment projects were
  basically absent.
• Branches and banking service was available across
  China.

4
Chinas Current Financial System

• The central bank
• A full panoply of commercial banks, government
  policy banks, and independent banking
  institutions.
• Accounting for 80 percent of the funds
  transferred through formal financial institutions
  during the 2000s.
• Capital markets
• Stock markets Less then 5 of funds raised
• Corporate bonds About 1 of funds raised.

5

• Why the Chinese economy has grown so rapidly
  without a well-functioning financial system?

6
Informal Financial Markets

• Informal financial markets in China are large,
  important, and little studied.
• Informal financial markets
• Informal rural credit mechanisms credit clubs,
  monelylenders, and unregistered private banks
  (surpassing rural institutional lending in size
  in 1986)
• Middle level Many state and collective firms
  have issued various kinds of promissory notes,
  stocks, and IOUs that are not formally
  recognized by the government.
• Top level Many local governments dispose of
  signficant funds not included in formal budget
  but are available for investment purposes (about
  half as much as formal bank lending).

7
(No Transcript)