Are Chinese Banking Reforms Meeting Their Deadlines?
There have recently been announcements of foreign investments in some of the largest Chinese banks. This opening of the banking sector to foreign investors is part of the new round of the banking sector reforms that was initiated by the Chinese authorities in 2003. Ideally, these reforms should be successfully implemented before further liberalisation of the exchange rate regime and the lifting of most restrictions on foreign banks by 2007, under China’s WTO commitments. Since the beginning of reforms, capital has been injected into state-owned banks and non-performing loans have been transferred to asset management companies. Thanks to this recapitalisation, two pilot state banks now exhibit non-performing loan ratios below 6% and capital adequacy ratios of more than 8%. Thus, it looks that state banks are meeting the deadlines that were set by the Chinese authorities for restructuring their portfolios. However, current reforms do not do enough to address problems of moral hazard, and there is no guarantee that the future flow of bad loans will be stemmed.
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