Evolution of China’s Banking System

This paper reviews historical developments and changes in the China’s banking system since the establishment of the People’s Republic of China. In contrast to most emerging economies, the Chinese banking industry showed gradual transformation notwithstanding its remarkable economic growth for the past three decades. China’s banking system has been heavily dominated by state-owned commercial banks. This paper examines China’s state-owned commercial banking sector in particular, shedding light on its problems, reforms, and efficiency. Banking sector in China has been known for its heavy non-performing loans and low efficiency because of interventions from the central government. Since China’s entry to the World Trade Organization (WTO) in December 2001, banking reforms have been extensively conducted for international competition. Nevertheless, there are still much room for improvement by international standards.