Banking Reform in China: A Soft-belly under Political Obstacles?

China's banking reform, which has long been criticized for its massive government intervention, poor asset quality and low capitalization, is now getting to another turning point. In the World Bank's latest report "China 2030," China is suggested to make a firm transition to a freer economy and reform its financial system otherwise facing up with the economic collapse. This paper reviews China's banking reform since 1994 and examines the problems remain, arguing that in order to sustain its long-term economic growth, which has been utilized for the government legitimacy, China should make its decision in developing a full-fledged market-based banking system and making a further retreat of state influence. Moreover, though with almost 30 years' trial and error, the banking reform in China still suffers from many fatal problems that may affect China's development profoundly in the future. This paper tries to explore the true reason behind the stagnant reform, suggesting that the banking reform in China is more a political issue than economic issue. China should set its mind to implement its banking reform or even take this reform as the pioneer for gradual political reform. [ABSTRACT FROM AUTHOR]