The Acceleration of China's Financial Reforms -- Pursuing More Efficient Resource Allocation
Economic Research Department Senior research fellow Sayuri Ito
China's economy has been prone to excess investment because the financial system， which centers around indirect finance by state-owned commercial banks (SOCBs)， does not allocate resources as efficiently as needed for a market economy. Clear signs of the financial system's shortcomings， combined with China's WTO commitment to open up the financial sector to foreign participation， have driven financial reform at an accelerating pace in recent years and produced some results. However， more work lies ahead， particularly in improving the capability of SOCBs to make lending decisions and manage risk.