China's Financial Sector: Contributions to Growth and Downside Risks

Report

China's Financial Sector: Contributions to Growth and Downside Risks

Published on Jan 25, 2007

Source: Conference Paper

As global financial markets reel from the blows of developed-country financial failures in the fall of 2008, what is the status of China’s financial system? Many contend that China’s financial system is weak and ill-suited for supporting sustained modernization. This paper disagrees and explains why. Its analysis of China’s financial system helps provide an understanding of why China’s economy will weather the current financial storm in good shape. This paper is forthcoming in 2009 in a volume to be published by the Milken Institute. [1] A preliminary version was presented at an academic conference in early 2007.

Any evaluation of China’s financial system and its prospects must concentrate on its contribution to China’s economic growth and to related solutions to a range of domestic economic goals. The evolution of China’s financial system, in all its various dimensions, is in midstream, with its many market and non-market aspects reforming simultaneously. Its hybrid nature, which combines policy-directed lending and nascent market-based institutions, has aspects considered by some foreign observers to be not only unconventional but also inefficient. In fact, the system appears to serve China’s current needs well.

[1] James R. Barth, John A. Tatom, and Glenn Yago (eds.), China’s Emerging Financial Markets: Challenges and Opportunities (Santa Monica, CA: Milken Institute, 2009)

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About the Author

Dr. Albert Keidel

Former Senior Associate, China Program

Keidel served as acting director and deputy director for the Office of East Asian Nations at the U.S. Department of the Treasury. Before joining Treasury in 2001, he covered economic trends, system reforms, poverty, and country risk as a senior economist in the World Bank office in Beijing.

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