Weathering the storm : reforming China's state-owned banks

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2010-08

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State-owned banks in China have been among the last institutions to undergo reform. Over the last ten years, new institutions and regulations have been created and the banks have undergone a process of divesting themselves of bad policy loans in preparation for public listing. Three of the “Big Four” are now exchanged on Chinese stock markets, though majority ownership remains with the state. The recent reforms of China’s financial system have been tested by a financial crisis that has toppled banks around the world; yet China’s banks remain profitable. They have been able to weather the storm because of the unique institutional relationships they have with various state vehicles. In particular, state ownership as manifested through asset-management companies have given the Chinese banks an edge over the international competition. However, this relationship is not without its risks. There still remains a great deal of dependence within China’s financial system on the state and its favorable policies, subjecting the banks to continued interference.

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