SOAS Research Online

Abstract

After close to two decades of financial sector reform, the financial system in the People’s Republic of China (PRC) is now a participant in the global financial system in a way that other large Asian economies such as Japan and India have never been. Its banks and insurance companies rank among the world’s largest. According to a new composite index of financial development constructed by the International Monetary Fund (IMF), the PRC has witnessed significant development since the early 1980s (Figure 2.1). Yet despite remarkable growth, the PRC’s policy-makers continue to grapple with questions over how to best to make the financial system serve the real economy. As pointed out by Justin Lin, there is a mismatch between China’s real economy and the financial system. The country’s real economy is largely comprised of farmers, small and medium-sized businesses, and yet the financial sector is dominated by big banks that prefer to deal with big companies.