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Published by: Ivey Publishing
Originally published in: 1997
Version: 1999-03-09

Abstract

This note examines the Chinese government''s reforms of the financial services sector as of 1997. Regulation of state-owned enterprises (SOE) was being altered so as to make the SOEs financially accountable, and this involved the reduction of subsidies that had been offered in the form of cheap loans from state banks. China wished to join the World Trade Organization, but this would require removal of restrictions on foreign financial institutions, as well as other liberalization measures. China''s banking system consisted of several distinct types of banks with differences in purposes and regulatory provisions. In particular, three new policy banks had been established to bear responsibility for low interest loans, allowing the other state-owned banks to achieve commercial viability. Meanwhile, foreign-owned banks were quickly extending their activities, and new types of financial services, such as cash cards and electronic banking, offered new opportunities. The insurance market involved many unique challenges, as did the evaluation of financial risk. The necessary changes in the financial service sector would be immense, and each bank would have to develop a strategy geared to its anticipation concerning the likely path and time profile of these changes.
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Abstract

This note examines the Chinese government''s reforms of the financial services sector as of 1997. Regulation of state-owned enterprises (SOE) was being altered so as to make the SOEs financially accountable, and this involved the reduction of subsidies that had been offered in the form of cheap loans from state banks. China wished to join the World Trade Organization, but this would require removal of restrictions on foreign financial institutions, as well as other liberalization measures. China''s banking system consisted of several distinct types of banks with differences in purposes and regulatory provisions. In particular, three new policy banks had been established to bear responsibility for low interest loans, allowing the other state-owned banks to achieve commercial viability. Meanwhile, foreign-owned banks were quickly extending their activities, and new types of financial services, such as cash cards and electronic banking, offered new opportunities. The insurance market involved many unique challenges, as did the evaluation of financial risk. The necessary changes in the financial service sector would be immense, and each bank would have to develop a strategy geared to its anticipation concerning the likely path and time profile of these changes.

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