The Acceleration of China's Financial Reforms -- Pursuing More Efficient Resource Allocation

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The Acceleration of China's Financial Reforms -- Pursuing More Efficient Resource Allocation

11/10/2006

The Acceleration of China's Financial Reforms -- Pursuing More Efficient Resource Allocation

Economic Research Department Executive Research Fellow Sayuri Ito

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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.