China’s Financial Sector Reforms and Their Impact on Its Economy

These reforms were conducted in three main stages: (i) China’s dual-track system from the 1980s to 1990s; (ii) China’s gradual privatisation of its state-owned financial companies, the opening of its capital markets to foreign investors, and loosening of financial controls from 2000s to 2020; and more recently, (iii) China’s tightening of economic reforms and centralising of its financial regulato. [...] Furthermore, in contrast to the majority of privately held financial institutions in the West that operate for profit, China’s state-owned banks furnished the state with the leverage to conduct economic policies and provide targeted lending to its preferred industries. [...] Treatment of NPLs, and Privatisation of State-owned Banks (2000-2020) Beijing was initially opposed to any sort of financial reforms despite the serious threats that the NPLs posed to the economy because the loans extended to the loss-making SOEs created jobs and provided for social stability. [...] To deal with this, Premier Zhu Rongji enacted a series of economic reforms: (i) the “grasping the large and letting the small go” policy of privatising and relinquishing control over smaller and unprofitable SOEs; (ii) the creation of asset management companies to strip out the NPLs from state-owned banks; (iii) the establishment of Central Huijin Investment Company to recapitalize – amounting to. [...] To recapitulate, China’s financial system has gone through more than four decades of reforms, which saw spikes in NPLs during the 1990s (that resulted in the privatisation of state-owned financial companies), liberalisation of its financial markets, and the loosening of capital and foreign exchange controls.