Banking Reform in China: Too Little, Too Late?

China’s economic expansion requires a responsive and responsible banking system to keep money flowing. This means financial reform in how China does business or else face severe financial implications having global consequences.
China’s economy has grown in leaps and bounds for a number of years. While it is ambitious, there are dangers along the way that could spell problems for China and the regional and global economy. China must catch up with the economic superpowers of the United States, Japan, and the European Union, but to do so, it must make key reforms in its financial industry or else lay the foundation for economic disaster. More specifically, there must be reforms in China’s commercial and shadow banking sectors. If these reforms do not occur or are neglected for an extended time, China is trading short-term economic growth for long-term financial calamity. The key question is: Is it too little, too late for these reforms?
The Need for Commercial Banking Reform
One area of reform is China needing more independently-owned banks. China’s banking industry is dominated by state-owned commercial banks that have historically funneled financial capital into government run projects including state-owned enterprises (SOEs). While this may help to spur on China’s economy by providing jobs and financial growth, many SOEs lose money and would probably be refused loans by banks elsewhere, globally. The problem is that the Chinese government is building up certain companies and industries while discouraging others, rather than letting free-market forces make that decision.

This post was published at FinancialSense on 07/10/2017.