ResearchBPEA | Fall 2006
The Contradiction in China’s Gradualist Banking Reforms
DURING CHINA’S TWO and a half decades of economic reform, it has often
been observed that the bank-dominated financial system is the economy’s
Achilles’ heel. Since 2003, China’s central government has reformed the
largest state-owned commercial banks to improve their competitiveness
before opening the banking industry to foreign competitors, as mandated as
part of the country’s accession to the World Trade Organization (WTO).
Reform of these banks has markedly improved their performance, but the
process has been gradual, and underlying problems remain.