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Whither China?Restarting the Reform Agenda$
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Wu Jinglian and Ma Guochuan

Print publication date: 2016

Print ISBN-13: 9780190223151

Published to Oxford Scholarship Online: May 2016

DOI: 10.1093/acprof:oso/9780190223151.001.0001

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Financial Institutions

Financial Institutions

Chapter:
(p.163) Dialogue 12 Financial Institutions
Source:
Whither China?
Author(s):

Wu Jinglian

Ma Guochuan

Xiaofeng Hua

Nancy Hearst

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780190223151.003.0012

A key task in the transition from a command economy to a market economy is to re-establish the financial system. The rudimentary financial system that existed after the Cultural Revolution had only superficial similarities with the financial systems in the market economies. During the 1980s, China experienced disorder in its financial sector because capital was still allocated by administrative decisions, not by the market. Although implementation of overall reform of the financial system began in 1994, bad debts and non-performing loans accumulated as a result of inappropriate government interventions, poor management, and weak internal controls. Resolving these problems required ownership reform, corporatization, and effective corporate governance. Furthermore, the principle guiding the stock markets—“the securities market should serve the state-owned enterprises”—created vast room for rent seeking. The solution is to establish a healthy market based on the rule of law and to redefine the regulatory philosophy.

Keywords:   Chapter financial system, non-performing loans, government intervention, stock market, ownership reform, corporate governance, rent seeking

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